Dividend Stocks: What’s Better? Growth or Consistency?

Are you trying to invest in dividend stocks? What’s better, growth or consistency? Here’s my take.

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Investing in dividend stocks can be very rewarding. That’s because dividend investors tend to receive payments on a recurring basis. If you ask me, that’s a great incentive to continue buying shares in those companies. However, when looking at dividend stocks to buy, it may not always be clear which companies could be the better option. For example, should investors focus on growth or consistency?

In my opinion, that’s not the right way to look at it. Yes, both are important. In an ideal world, you’d want both of those qualities in the dividend stocks you hold. However, you don’t necessarily need to choose one or the other. In this article, I will give examples of stocks that can give you growth or consistency. You’ll see why both are great for their own reasons.

Dividend stocks that offer great growth

Dividend growth can be viewed in two ways. You can look at it in terms of how fast a dividend grows, or you can look at it in terms of how often a stock increases its dividend. If we focus on the former, we can consider a company like Canadian National Railway (TSX:CNR). This company needs very little introduction. One of Canada’s most recognizable companies, Canadian National Railway operates about 33,000 km of track.

In 1996, Canadian National Railway paid investors a quarterly dividend of $0.016667. Today, this company’s quarterly dividend is $0.845 per share. That represents a compound annual growth rate of about 15%. To put that into perspective, the annual inflation rate is about 2%. That means Canadian National Railway shareholders have seen their dividends grow much faster than inflation. That allows them the ability to increase buying power over time.

If you’re looking for a stock that can provide growth each year, then consider a company like Fortis (TSX:FTS). This is a utility company that serves more than three million customers across North America. Fortis is well known among investors for its outstanding dividend growth.

This company has increased its dividend distribution in each of the past 50 years — a Canadian Dividend Aristocrat — which gives it the second-longest active dividend-growth streak in Canada. Fortis has already announced its plans to continue growing its dividend through to 2028. Very few companies can boast a dividend-growth streak like Fortis, so it’s certainly a dividend stock that deserves some consideration, in my opinion.

Any way you look at it, dividend growth is clearly a quality that investors should consider.

A dividend stock that you can rely on

While there are certainly benefits in looking at dividend stocks in terms of growth, looking for consistent or reliable dividend stocks isn’t the wrong way to go about it either. Consider a company like Bank of Nova Scotia (TSX:BNS). This is one of Canada’s largest banks and another one of our country’s most well-known companies.

Bank of Nova Scotia first started paying shareholders a dividend on July 1, 1833. Since then, it has never missed a single dividend payment. That represents nearly 191 consecutive years of continued dividend distributions. This feat becomes even more impressive when you consider how many periods of economic uncertainty (e.g., recessions) have occurred over that period.

If I’m looking for dividend stocks that could continue to pay me over the coming years, Bank of Nova Scotia is certainly on that list.

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 Jed Lloren has positions in Bank Of Nova Scotia and Fortis. The Motley Fool recommends Bank Of Nova Scotia, Canadian National Railway, and Fortis. The Motley Fool has a disclosure policy.

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