Dividend growth stocks have historically outpaced the broader markets due to their ability to derive cash flows across market cycles. The best dividend stocks are those with an enviable history of raising their dividends over time, enhancing the effective yield in the process. It also suggests that these companies have grown earnings and cash flows, enabling them to deliver capital gains to investors as well.
Here are three TSX dividend stocks ready for hikes in 2024.
Enbridge stock
Among the most popular dividend stocks in Canada, Enbridge (TSX: ENB) has raised dividends each year since 1995. These payouts have risen by 10% annually for the last 28 years, allowing Enbridge to pay shareholders a forward yield of 7.5%.
Despite an uncertain macro environment, Enbridge will raise its quarterly dividend payout to $0.915 per share in 2024, up from $0.888 per share in 2024.
A majority of Enbridge’s cash flows are tied to long-term contracts. Moreover, these contracts are adjusted to inflation, making the TSX giant almost immune to daily fluctuations in commodity prices.
A stable earnings base and robust capital growth program coupled with a sustainable payout ratio should allow Enbridge to keep raising dividends in 2024 and beyond. Priced at 16 times forward earnings, it also trades at a discount of 10% to consensus price target estimates.
Vermilion Energy stock
Another energy stock on the list is Vermilion Energy (TSX: VET), which is engaged in the acquisition, exploration, development, and production of petroleum and natural gas in North America, Europe, and Australia.
It currently pays shareholders a quarterly dividend of $0.10 per share, translating to a forward yield of 2.5%. In 2024, Vermilion Energy has increased dividends by 20% to $0.12 per share.
The company forecasts operating cash flow at $1.3 billion and free cash flow at $700 million in 2024, indicating its capital expenditures should be roughly $600 million. Vermilion expects free cash flow to increase by 40% year over year this year and will distribute less than $80 million in dividends to investors.
With a payout ratio of less than 20%, Vermilion Energy can easily increase its dividends by a significant margin at current oil prices.
Priced at 4.2 times forward earnings, VET stock trades at a discount of 56% to consensus price target estimates.
EQB stock
The final stock on my list is EQB (TSX: EQB), which currently offers shareholders a dividend yield of 1.82%, given its annual dividend of $1.60 per share. In September 2023, EQB paid shareholders a dividend of $0.38 per share and increased the payout by 5% to $0.40 per share.
In the last 10 years, EQB’s dividends have risen by 17.5% annually, making it one of the best dividend growth stocks in Canada.
Despite a tepid lending environment, EQB grew its loans under management and earnings in Q3. It also increased non-interest revenue and is on track to improve adjusted earnings from $9.40 per share in 2022 to $13.10 per share in 2024.
Priced at 6.8 times forward earnings, EQB stock is really cheap, given that adjusted earnings are forecast to rise by 19.5% annually in the next five years.
