Top Canadian Stocks to Buy for Dividend Growth

Dividend stocks are often mistaken for companies too big to grow further and those with stable income. Some growing companies with structured finances give both dividends and growth. The unique feature of such growing companies is their dividends are not stable and nor do they grow at a 3% inflation rate. These companies are not only growing by revenue but also by their cash flows and are thus categorized as dividend growth stocks.

Are dividend growth stocks risky?

A company pays dividends from its free cash flow (FCF) left after allocating money for capital expenditures and servicing debt. A company that is consistently growing its dividends is indeed growing its FCF. There are two ways to grow FCF, either by increasing revenue through business expansion or improving profits by cutting costs and optimizing capital spending.

In a difficult economic situation, business growth could be affected, increasing the risk of a dividend growth pause or a dividend cut. Nonetheless, they are a good investment in the long term.

Top Canadian stocks to buy for dividend growth

Following are three dividend growth stocks with a good track record of dividend growth and regular payouts.

goeasy stock

goeasy (TSX: GSY) stock has slipped a whopping 16% over the week as Trump tariffs sent shockwaves across the Canadian economy. Although the tariffs have been paused for 30 days, BMO Capital Markets expects trade uncertainty to affect Canada’s economic growth.

A tariff implementation could make goods expensive and affect consumer demand and business growth. That is not a conducive business environment for a sub-prime lender already experiencing an increased delinquency rate of 9.2% in the second quarter from 8.8% a year ago.

However, goeasy has been through worse and has still paid dividends and even grown them under mild recessions. After recovering from the Global Financial Crisis in 2014, goeasy increased its dividend at a 10-year compounded annual growth rate of 31%.

Even though its dividend yield is only 2.8%, high dividend growth builds a sizeable payout over time.

Manulife stock

Manulife Financial (TSX: MFC) has grown its dividends at an average annual rate of 10.9%. The life and health insurance company sustained its payouts through the 2008 Global Financial Recession. And its stock price is back to the 2008 level, as it sees strong demand for its insurance products. Higher premiums convert to higher dividend payments. The stock’s current trading price is at its 16-year high. It would be a good stock to add to your watchlist and buy at the dip.

Telus stock

Telus Corporation (TSX: T) has been expanding its coverage by investing in 5G infrastructure. In the last few months, Telus added customers in new markets by selling bundled services through rival networks. New subscriptions and cross-selling opportunities have increased its FCF, enabling the company to grow its dividend by an average annual rate of 7.5% annually for the last 10 years.

How these stocks can grow your dividends

A $10,000 investment in the above stocks would have bought you 500 shares of each. In the table below, you can see how the dividend growth cycle would increase your annual dividends from each stock.