Dividend Powerhouses: Canadian Stocks to Fuel Your Portfolio

Do you want to fuel higher growth in your dividend income? Then choose dividend stocks with above-average growth potential.

Kay Ng

Kay began investing in dividend stocks around 2008 via the concept of value investing. Since then, she has expanded into growth investing, including in small caps. Her passion for investing has only grown over the years! After graduating from UBC with a BSc in Computer Science, she took university courses in financial markets, finance, and financial accounting. She has contributed her works to Motley Fool, Sure Dividend, and Seeking Alpha.

Published June 30, 2023 9:30 am EDT

To build a dividend powerhouse that fuels your stock portfolio, you can consider Canadian stocks that have the potential of above-average dividend growth over the long term. Here are some of the best Canadian stocks you can put on your watchlist.

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Alimentation Couche-Tard

Alimentation Couche-Tard (TSX: ATD) is categorized as a consumer discretionary stock, as it’s a convenience store and road-side fuel retailer. That said, its earnings have been super resilient — even during recessionary periods. For example, it experienced double-digit adjusted earnings-per-share growth during the pandemic-triggered recession.

The stock maintains a low payout ratio and has been increasing its dividend at a high rate. For reference, its 10-year dividend-growth rate is about 25%. So, it doubled its dividend roughly every three years in the period, approximated with the Rule of 72.

At $67.93 per share, the stock trades at a discount of about 11% according to the analyst consensus 12-month price target. So, it may be appropriate for investors who wish to fuel their dividend growth to take a bite.

goeasy

goeasy (TSX: GSY) took a beating in a higher interest rate environment. Specifically, the stock of the leading Canadian non-prime credit lender is down more than 45% from its peak in 2021.

At $109.24 per share at writing, it pays a dividend yield of about 3.5%, which is not bad given its growth potential. For example, in the past five, 10, and 15 years, its earnings-per-share growth fueled dividend growth of approximately 38%, 27%, 18%, respectively, per year. Its most recent dividend hike was 5.5%, though.

On a reverse of capital tightening in an interest rate-cutting environment, the stock could revert nicely for extraordinary capital gains and dividend growth. So, investors need to be patient in the name. Currently, analysts believe the undervalued stock trades at a massive discount of close to 33%. The valuation reversion alone can drive price appreciation of approximately 48%.

Stella-Jones

Stella-Jones (TSX: SJ) makes pressure-treated wood products like railway ties and utility poles. It generates quality earnings that grow in most years. In the past 10 years, its adjusted earnings per share increased by approximately 13% per year, which helped drive a dividend-growth rate of almost 18% in the period.

The basic materials stock has doubled from its bottom of 2022. And it appears to be fairly valued today. The company’s five-year return on assets and return on equity of 8.1% and 14.6%, respectively, are decent. Interested investors might nibble here and add more when given the opportunity of a consolidation or a potential dip.

Let’s be conservative and assume a dividend-growth rate of 12% across these three stocks in an equal-weight portfolio. Investors would be able to double their dividend income from the portfolio in about six years!