Dividend growth stocks have a long record of outperforming the broader market. Why? Typically, if you are consistently growing your dividend per share, you also need to be growing earnings per share. Earnings per share growth likewise translates into stock price appreciation.
What better combo than a fast-growing dividend and a fast-growing stock? The combination of income and capital gains can be potent. If you are looking for two top dividend growth stocks to buy, these three are worth checking out today.
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A fintech stock with crazy dividend growth
goeasy (TSX: GSY) might be one of Canada’s best growth and dividend stocks. Its stock is up 680% over the past 10 years. Its dividend per share is up 980% in that time.
The reason its dividend can soar so quickly is because its earnings per share had increased by 822%. Its dividend payout ratio has largely traded below 30% during that time. That indicates that its dividend growth rate has been highly sustainable.
goeasy has grown to become one of the largest non-prime lenders in Canada. By building out a large retail network, it has created a strong brand and identity in the Canadian market.
The big bank lenders have tightened their loan books as they fear an impending recession. As a result, more people are streaming to goeasy for lending services.
goeasy has expanded its loans into vehicle finance, home equity lines of credit, and buy-now pay later. All these factors have helped expand its total addressable market.
It is also developing a credit card product that could provide another leg of growth. It trades for 9 times earnings despite growing more than 2 times that rate. This dividend stock yields 2.5% right now.
An energy stock with strong future income potential
Cenovus Energy (TSX: CVE) is another up-and-coming income growth stock. While its 2.8% dividend yield is not overly large, its dividend per share has increased by 850% since 2020!
Now, it is important to keep in mind that growth is after it cut its dividend in early 2020 during the pandemic. However, the growth does demonstrate the strong turnaround this company has had.
Cenovus has an excellent set of assets. It has decades of oil production capacity, and its refinery business is just hitting its stride. Cenovus just hit its long-term net debt target.
Consequently, it now plans to deliver 100% of excess cash back to shareholders. That will come in the form of share buybacks, dividend growth, and perhaps even special dividends. Its stock is down 7% in the past few days, and it looks like an attractive bargain here.
An old company with many years of dividends ahead
Canadian National Railway (TSX: CNR) is another long-term dividend growth stock. The company is facing some near-term headwinds from an impending strike and a weakening freight market. As a result, the stock is down 8% in the past month.
While near-term concerns are worrisome, it does present a chance to buy the stock at a good valuation. CNR is over 100 years old. It has proven the test of time. That is especially true now that it has a management team super focused on rail efficiency and velocity.
CNR has a sector-leading balance sheet and plenty of firepower for share buybacks right now. It has lots of flexibility to increase its dividend as well.
Today, CNR stock trades with a 2.2% yield. It has grown its dividend by a 13% compounded annual growth rate over the past decade. It could certainly deliver solid income growth in the coming decade ahead.
