Just because a Canadian stock pays a dividend doesn’t mean it can’t also be growing. Companies that pay a dividend must be very prudent with their capital. Managers need to be wise to manage growth, profitability, and dividend payments.
Even if a dividend is small, it can help keep management in check to ensure smart capital decisions. Likewise, a lot of institutional investors like a stock to have a dividend so it can fit into their various mandates or funds. That is why dividend-growth stocks tend to outperform over the longer term.
For a stock to double in five years or less, it needs to deliver a compounded annual return of 15% or better. Here are three stocks that pay dividends which could do that or better over the coming five years.
A trucking stock with a fast-growing dividend
TFI International (TSX: TFII) stock only earns a 1% dividend yield. However, it has grown its dividend by a 17% compounded annual growth rate (CAGR) over the past five years. Its current dividend is 2.1 times larger than it was just five years ago.
TFI has become a freight and logistics giant in North America. Through smart management and accretive acquisitions, it has delivered exceptional results for shareholders. TFII stock is up 286% since 2018. Add in its dividends and that translates to a 33% compounded annual return.
Right now, the company has a solid balance sheet and excess capacity to grow. With a major competitor going bankrupt, it has a great opportunity to take market share. Lately, it has been buying back a tonne of stock, so there is a good chance for solid 15%-plus total returns for the coming years.
A dividend stock growing at an ultra-fast pace
Another dividend stock with the potential to double in five years is goeasy (TSX: GSY). It pays a 3.1% dividend right now. Speaking about dividend growth, goeasy has increased its dividend by over 300% in the past five years!
While this stock has pulled back significantly since 2021, it is still up 138% in the past five years. For context, that is a 19% compounded annual return.
goeasy is a leading non-prime lender in Canada. Over the past few years, the company has expanded its geographic and product footprint. At the same time, the quality of its loans has improved.
This stock trades at eight times earnings, which is at the low-end of its five-year average. For a stock with the opportunity to improve both earnings and valuation, goeasy is an interesting dividend/growth stock.
An ultra-cheap growth stock
BRP (TSX: DOO) is another growth stock with a dividend. It yields 0.68% today. However, BRP’s dividend today is 100% larger than it was five years ago. It has grown its dividend by a 21% CAGR.
This dividend stock has delivered a 59% return over the past five years. While that is an underperformance compared to the two stocks above, it is part of the reason to buy this stock.
BRP stock is cheap. It trades with a price-to-earnings (P/E) ratio of 7.8 times. That is a material discount to its competitors and also to its five-year average of 12 times.
This company has some of the world’s largest brands for off-road, snow, and marine vehicles. The Ski-Doo maker has steadily been stealing market share and expanding its product offerings. If you can look past the current recession fears, DOO could be a diamond in the rough.
