It has been a tough couple of years for many well-known Canadian dividend stocks. Many Canadian dividend stocks have utilized debt to finance heavy capital-investment plans. This was all good when interest rates were below 2%. It is not such a good plan when interest rates are 6% or more.
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The best dividends are those generated from cash flows
The smartest dividend stocks are those that pay dividends out of their excess cash flow (after investments) rather than from a growing burden of debt. If you want reliable and growing dividends, it is key to look beyond the dividend yield of a stock.
Rather, look for a quality business that also happens to pay dividends. As the business grows, so too will the dividend. If you have $500 to buy some smart dividend-growth stocks, here are three to consider today.
A financial stock with massive dividend growth
goeasy (TSX:GSY) stock has been on a tear as of late. Its stock is up 13% in the past month. This company has provided an excellent combination of growth and income.
Over the past 10 years, earnings per share have risen by 919% (a 29% compounded annual growth rate (CAGR)). In that same period, its annual dividend increased by 1,029% (a 30.9% CAGR).
During this time, this stock’s dividend payout ratio has remained relatively stable, meaning earnings have been a driver of strong dividend growth. Despite its stock rising 256% in the past five years, goeasy stock still yields 2.7% today.
This company still has a large growth opportunity, especially as it expands its non-prime loan products to credit cards in 2024.
A buttress for any portfolio
Another dividend stock to buy with $500 is Canadian National Railway (TSX:CNR). It is like goeasy in that its dividend yield is not massive — it only yields 2% today.
Yet, CNR has an excellent “track” record of total returns for shareholders. It has increased earnings per share by 120% (9% CAGR) in the past 10 years and 686% (11.5% CAGR) over the past 20 years. Its annual dividend has risen by 216% (13% CAGR) over the past 10 years and 1,512% (15.7% CAGR) over the past 20 years.
Recently, CNR has faced some headwinds from weather, strikes, and a weak freight environment. However, the company continues to target 10% earnings per share growth in 2024.
The company has a strong balance sheet, a leading network, and a smart executive team. It should continue to deliver steady dividend growth and capital upside in the years to come.
A real estate stock with a growing dividend
Granite Real Estate Investment Trust (TSX:GRT.UN) is the one stock in this list with a higher dividend yield. It yields for 4.85% today.
It is the value pick on the list. Real estate stocks have struggled lately, and Granite is no exception. Yet, that is where the opportunity is.
Granite operates a very high-quality portfolio of industrial properties across Canada, the U.S., and Europe. It has a strong tenant mix, long-term leases, and an excellent market-leading balance sheet. It has a very stable business model.
Yet, this real estate investment trust trades at a considerable discount to its private market value. It has a great 13-year history of annually increasing its monthly distribution. At some point, interest rates will pull back, and this stock could have considerable upside when they do.
