An incredible dividend stock is not one with just a high dividend yield. In fact, stocks with overly elevated dividend yields (like over 7%) often indicate a business is facing significant challenges. The market perceives the risk, drops the stock price, and increases the yield to compensate for the risk.
Incredible dividend stocks may not have such a significant yield. Yet, they persistently grow their dividend because they are also growing earnings and cash flow. A stock that consistently grows its earnings and cash flow is also more likely to enjoy capital appreciation at a faster rate.
While dividends are nice, total returns are ultimately better. There is no point in earning an attractive initial yield if the value of your stock declines and the dividend eventually gets cut.
If you want some great dividend stocks that can deliver strong total returns, here are three to buy in March.
A dividend stock with strong total returns
goeasy (TSX:GSY) is an excellent example. Today, this stock yields 2.87%. That is nothing to get excited about. However, this stock is up 270% in the past five years and 798% in the past 10 years.
Its dividend has increased by a 27% compound annual growth rate (CAGR) over the decade. Part of the reason is that earnings per share has grown by a 28% compounded rate in that time. The company has a payout target of about 30%. As its income has risen, so has its dividend.
goeasy has built out one of Canada’s largest non-prime lending networks. While this is a riskier segment, goeasy has delivered exceptional returns even through tough economic cycles.
The company is expanding its product array into automobile and recreational vehicle loans, buy-now-pay-later, and it recently announced credit card products. All these areas could help drive solid earnings and dividend growth in the years ahead.
A transport stock with two decades of dividend growth
Canadian National Railway (TSX:CNR) is a similar type of dividend stock. Its relatively small 2% dividend yield is made up for by its 15% compounded annual dividend growth over the past two decades.
Its stock has returned a solid 12.8% compounded total annual return over the past 10 years. Shareholders that reinvested their dividends would be up 235% in that time.
CN has one of the best balance sheets in the industry. It is in a strong position to continue growing its business, increase efficiency/accelerate velocity, and return capital to shareholders (through share buybacks and dividend growth).
CN may not grow as fast as goeasy, but its solid low-risk business model should continue to deliver strong total returns going forward.
Decades of reserves and decades of dividend growth
Canadian Natural Resources (TSX:CNQ) trades with a 3.9% dividend yield today. While that is not massive, it is hard to find a better dividend-growth stock in Canada today. It has increased its dividend for 24 consecutive years by a 21% CAGR.
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It just raised its quarterly dividend by 5%. The company has reached its $10 billion net debt target. Consequently, it plans to return 100% of the excess cash it generates to shareholders. It has already been aggressively buying backstock, but special dividends could also be on the docket (especially if oil prices were to rise from here).
CNQ is one of the best-managed companies in the world. It has top energy-producing assets and decades of reserves it can continue to unlock. For dividends and solid capital returns, CNQ is a top stock to add in March.
