What’s the first thing you see in a dividend stock? For most investors, the answer would be yield. That’s how they measure the worth of a dividend stock and how they compare different dividend stocks.
For others, it might be long-term dividend sustainability and a dividend-growth streak. The number of years a company has grown its payouts and how solid its payout ratio is or has remained over the years should influence your choice as well.
However, there are stocks that do very well in one of these but not the other — i.e., a long dividend growth streak but a relatively small yield.
They don’t make much sense from a dividend perspective because even if they do offer financially sustainable and safe dividends, the dividend-based returns might be too weak to be considered.
But for some of these Aristocrats, the growth they offer in lieu of yield (which is often the reason for the small yield) is more than enough to make up for this weakness.
A convenience store company
Laval-based Alimentation Couche-Tard (TSX:ATD) is one of the largest convenience store chains in the world. It operates in 29 countries and has over 16,700 stores.
Most of these stores are under the Circle K banner, one of the three bands under Alimentation Couche-Tard, which was originally an American chain that the company purchased in 2003. The convenience-store-based business model is safe, while geographical diversification adds another layer of safety.
The dividends of this blue-chip stock are quite safe as well. It has been growing its payouts for 13 consecutive years, and its payout ratio is one of the safest in the country. It hasn’t risen past 15% in the last ten years.
However, despite this solid dividend history, it’s not an attractive pick for dividends due to its paltry 0.87% yield. But this is nicely counterbalanced by the stock’s powerful growth. The stock has grown by over 125% in the last five years alone.
A railway company
Canadian National Railway (TSX:CNR) is one of the largest publicly traded companies in Canada by market capitalization and one of the top stocks trading on the TSX right now.
It is a century-old business that is a literal part of the country’s fabric, though its network reaches all the way to Mexico. The 20,000-mile railway network under its purview connects three North American ports to hundreds of regions and thousands of businesses.
It’s also among the oldest Dividend Aristocrats in the country and has grown its payouts for 27 consecutive years.
The yield is relatively small, but at 2%, it’s far better than that of Alimentation. One of the reasons the yield is relatively low is that the stock has been going up almost consistently for the past two decades.
There have been quite a few bumps along the road, but the long-term trajectory has mostly been upwards. It grew by over 180% in the last 10 years.
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Foolish takeaway
If you are satisfied with two of the three things (yield, solid dividend history, and growth) and lean more towards growth than yield, then the two stocks are definitely worth looking into. The dividends may not be big or flashy, but they are consistent and reliable.
