Dividend growth stocks have a history of providing great income and total returns for shareholders. For a company to regularly increase its dividend per share, it also needs to predictably grow its income and cash flows per share.
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Rising income/cash flow can support rising dividends
A rising dividend also means a company needs to carefully manage its balance sheet and ensure investments make a good return. Overall, a stock with a long track record of predictably increasing its dividend is a hallmark of a high-end business.
Dividend growth stocks don’t always have the highest yield. However, you want to own a business that has excess cash to invest in growth and also pay/grow its dividend.
At the end of the day, most shareholders want a total return on their investment. A combination of income and capital gains can provide substantial returns over time. If you are looking for some quality dividend stocks to add in October, these are two to watch now.
A retailer for value, growth, and income
Alimentation Couche-Tard (TSX:ATD) does not pay a large dividend. It yields only 1% right now. However, that misses the fact that its dividend has increased 549% over the past 10 years. ATD’s dividend per share has increased by a 22% compounded annual growth rate (CAGR).
It hasn’t been a great year for Couche-Tard stock. ATD stock is down 5% on the year after touching a new 52-week low. A weakening global economy has hit consumer demand for higher margin convenience products (like alcohol and cigarettes). That has hit Couche-Tard’s top and bottom line.
However, Couche-Tard is seeing the weak environment as a great acquisition opportunity. It just added a large portfolio in the U.S. The convenience retailer continues talks to acquire 7-11. Many are worried about such a large acquisition.
Couche-Tard is an excellent operator and acquirer. If any group can help turn 7-11 around, it is Couche-Tard. If the deal doesn’t happen, not much is lost. Overall, the market appears to be overweighting the risks of the deal. Consequently, shareholders can pick up the stock at a fair price today.
A trucking stock with a great dividend growth record
TFI International (TSX:TFII) is another high quality stock that is temporarily marked down. While TFI stock is up 6% over the past year, it is down 15% in the past six months. Longer-term, it has a stellar total return record.
Like Couche-Tard, TFI doesn’t pay a big dividend. TFII yields 1.2% right now. Over the past 10 years, its dividend has increased 196%. Its dividend per share has increased by a 12% CAGR.
TFI is the largest transport company in Canada. Its presence is growing in the large U.S. market. The first-rate management team has a focus on low-cost operations and high returns on invested capital.
The company has many levers to create shareholder value. These include improving network efficiency, taking market share (especially in the U.S.), spinning off parts of its franchise, acquiring other transport businesses, buying back stock, and growing its dividend.
The company generates a lot of spare cash, so it has the capacity to pull all these levers. The freight market is currently in a depression, but this stock could rebound nicely once the industry normalizes. TFII looks like an attractive buy today.
