Investing in dividend growth stocks is a low-cost strategy for Canadians looking to begin a recurring income stream. Typically, companies that have grown their dividends at a consistent pace have outperformed the broader TSX index over time.
Given their strong history of dividend growth, here are three such TSX dividend stocks you can consider buying today.
E-L Financial stock
Valued at a market cap of $4.60 billion by market cap, E-L Financial (TSX: ELF) operates as an investment and insurance in Canada. It has two primary business segments that include the following:
- E-L Corporate: The business owns investments in equities and fixed-income securities through pooled funds and other investment companies.
- Empire Life: The business underwrites life and health insurance policies, wealth management products, group plans, and other financial services.
E-L Financial has returned close to 90% to shareholders in the last 10 years. However, after adjusting for dividend reinvestments, cumulative returns are closer to 150%. The company pays shareholders an annual dividend of $15 per share, indicating a forward yield of 1.13%, which might not seem much. However, investors should note that these payouts have risen by more than 40% annually in the past decade, significantly enhancing the yield at cost.
Given its outstanding share count, E-L Financial pays around $51 million to shareholders in annual dividends. Comparatively, its free cash flow in the last 12 months has totalled $750 million, indicating a payout ratio of less than 10%.
Quebecor stock
Quebecor (TSX: QBR.B) operates in the telecom, media, and sports and entertainment businesses in Canada. Its services include television distribution, internet access, wireline and mobile telephony, business solutions, and over-the-top video services.
Quebecor, valued at $8 billion by market cap, pays shareholders an annual dividend of $1.30 per share, indicating a forward yield of almost 4%. Further, these payouts have risen 38% annually in the last decade. Since September 2014, the TSX tech stock has almost tripled investor returns after adjusting for dividend reinvestments.
The company’s annual dividend payments total around $213 million, while its free cash flow in the last 12 months is much higher at $1.14 billion. Priced at 10 times forward earnings, the tech stock trades at an 18% discount to consensus price target estimates.
North American Construction Group stock
The final TSX dividend stock on my list is North American Construction Group (TSX: NOA), which offers equipment maintenance and mining and heavy construction services in Canada, the U.S., and Australia.
Valued at $652 million by market cap, North American Construction pays shareholders an annual dividend of $0.40 per share, indicating a forward yield of 1.6%. These payouts have risen by 25.9% annually, which is exceptional for a company in the energy equipment and services sector.
With $11 million in annual dividend payments, North American Construction has more than doubled its free cash flow from $29.5 million in 2020 to $67.6 million in 2023.
Priced at just six time forward earnings, the TSX stock is cheap, given that adjusted earnings are forecast to expand by 11% annually in the next five years. Analysts remain bullish and expect the stock to surge by 60%, given consensus price target estimates.
