For Canadian investors who don’t need passive income today, dividend-growth investing may be the strategy to shoot for. Undoubtedly, it’s always nice to get a quarterly supplement to one’s income, especially these days when it’s become so expensive to buy everyday necessities. That said, by paying a bit more attention to companies that have prolonged records of raising dividends, one can have a good amount of income today whilst punching their ticket to a richer income stream in the future.
In this piece, we’ll check out two intriguing Canadian dividend growers that have somewhat decent upfront yields today, along with top-tier dividend-growth prospects that should help investors continue staying ahead of what remains of inflation. While Canada’s inflation rate is closer to normalizing, the pains of the past few years’ worth of price hikes remain as wage growth looks to catch up.
Without further ado, let’s get into the names that can help fast-track you to a solid retirement.
CN Rail
CN Rail (TSX: CNR) is one of those steady, boring dividend-growth stocks you can buy and hold for many years at a time without having to check in on constantly. Undoubtedly, a large reason why CNR stock is one of the best “sleep easy” investments on the TSX Index is because it boasts an incredibly wide moat. Further, the moat isn’t just wide; it’s also quite durable in the face of game-changing disruptive technologies.
In an era where generative AI can upend business models, perhaps an economic moat’s durability is every bit as important as its width. When it comes to moat durability, it’s tough to top the railways, as they continue to be one of the best ways to move goods in bulk across North America. And I don’t see that changing anytime soon. Not with the advent of artificial intelligence (AI) or any other technology. When it comes to CN Rail, you’ll get a wide and durable moat to go with a dividend-growth rate that’s above average.
Over the last five years, the dividend has averaged more than 10% in annualized dividend growth. That’s impressive. And such generous raises don’t require you to lift a finger, either! The longer you hold, the more the dividend has a chance to grow in your portfolio.
Further, you’re also getting a dividend that’s quite generous, with shares yielding 1.95% in writing. Over the past five years, CNR stock has averaged a yield just below the 1.8% mark.
Bank of Nova Scotia
Bank of Nova Scotia (TSX: BNS) is a highly underrated Canadian bank that I’d continue to keep tabs on as shares look to sustain a relief rally to take it back to prior highs not seen since the start of 2022. Personally, I think BNS stock may be worth getting behind after its decent 6% rally in the past six months. Indeed, it’s nothing to write home about, given the magnitude of the past decline. However, I think the dividend yield (6.59% at writing) and recent progress by some of Bank of Nova Scotia’s better-performing peers is highly encouraging.
Of course, every bank stock is built differently, with Bank of Nova Scotia having more emerging markets exposure than its peers. However, I think it’s hard to ignore the deep discount and perhaps the perception that things could be getting better as the inflation hailstorm begins to feel less horrid with time.
Arguably, BNS stock is seen by some as a riskier bank due to its international market exposure. That said, I think a strong case could be made that it’s one of the least risky of the batch while it’s going for just 10.75 times trailing price-to-earnings (P/E) now that it’s down more than 31% from its peak.
