Dividend Growth in the Canadian Market: Key Players and Trends

Are you looking for some Canadian dividend-growth stocks to hold for the long term? Check out these stocks for great total returns.

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Canada has a plethora of dividend stocks to choose from. However, the vastness of the market can sometimes be overwhelming.

Stocks with high dividend yields can be appealing for their outsized immediate cash return. However, stocks with high yields (over 7%) tend to also come with elevated business, financial, or operational risk.

Some of Canada’s biggest dividend yielders have delivered mute to negative capital returns over the years. Sometimes the need to maintain an overtly large dividend can compromise the integrity of a business long term.

Choose dividend-growth stocks over those with large dividends

Stocks that steadily and rationally grow their dividend tend to be a better bet. A company that raises its dividend, because its earnings/cash flows per share are growing, has a much higher likelihood of delivering superior total returns.

Fortunately, Canada has several great dividend-growth stocks. You may not get a high upfront dividend, but if you can grow your capital and your income stream, you are winning the best of both worlds.

goeasy: A top total return stock

One TSX stock that does this very effectively is goeasy (TSX:GSY). It yields a 2.8% dividend today. However, it has grown its annual dividend with a 27% compounded annual growth rate (CAGR) over the decade. That dividend growth is largely supported by earnings per share growth that increased by a 28% CAGR in that time.

Minus the dividends, its stock has delivered an astounding 742% 10-year return (24% CAGR) and a 307% five-year return (32.6% CAGR).

goeasy provides loans to consumers who generally don’t qualify at the major Canadian banks. This is a higher-risk segment, so it must charge higher interest rates.

With less competition, goeasy has been able to grab market share across Canada. The company is focused on diversifying its product offering, increasing the quality of its loans, and expanding into new regions. Despite an already stellar record of returns, it still has a substantial growth runway ahead.

Fortis: A safe and steady dividend grower

goeasy stock is a great performer, but it operates in a risky segment. If you want dividend growth from a more safe and steady stock, you might want to consider Fortis (TSX:FTS). It yields 4.3% today.

With 50 consecutive years of annual dividend growth under its belt, it has a great heritage of delivering reliable returns for shareholders. Fortis operates 10 utilities that are focused on energy transmission and distribution.

Everyone needs power and gas. Fortis provides this. In return, it collects a very stable, regulated return on the capital investments it makes.

Right now, it has a capital plan focused on growing the business by about 6% a year for the next five years. It believes this should translate into 4-6% annual dividend per share growth over that time.

CNR: A long-term solid performer

Canadian National Railway (TSX:CNR) has been another great stock for dividend growth and total returns. It only yields 2% today. However, it has grown its dividend by a +12% CAGR for 20 years. Over the past 10 years, it has delivered a solid 221% total return (12% CAGR).

Railroad stocks are cyclical in the near term. However, over the long term, they deliver very solid returns. This is largely because they have strong competitive moats and excellent pricing power. Earnings per share has grown by around 10-12% on average over the decade.

CNR was challenged by a tough shipping environment in 2023. The stock pulled back this year. However, the company has a smart new chief executive officer improving efficiencies and maximizing service delivery. The company is on the verge of further great long-term returns ahead.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Robin Brown has positions in Goeasy. The Motley Fool recommends Canadian National Railway and Fortis. The Motley Fool has a disclosure policy.

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