As income investors, we should always be searching for ways to maximize our dividends. One of the best ways to do this is to find companies/stocks that have a record of raising their payouts. This is the least risky way to maximize your dividends because companies that are increasing their payouts are clearly in a good spot both financially and fundamentally.
Without further ado, here are two Canadian dividend aristocrats that are increasing their payouts and offering generous dividends to their shareholders.
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What is a payout ratio?
The payout ratio is simply the proportion of earnings paid out as dividends. It can be expressed as a percent of earnings or cash flow. Either way, the idea is the same. When a company chooses to increase its payout ratio, this means more money gets in the hands of shareholders.
Canadian Natural Resources: Paying out 100% of free cash flow
With long-life reserves, minimal maintenance capital required for its assets, and now, a debt balance that’s fallen to target levels, Canadian Natural Resources Ltd. (TSX: CNQ) is paying out 100% of its free cash flow to shareholders.
This has meant more dividend increases last year, with two dividend increases in 2024. The price of oil is currently approaching $75. As oil moves higher, Canadian Natural’s leverage is significant with free cash flow rising rapidly.
Looking ahead, we can expect Canadian Natural to continue to leverage its world class assets to drive cash flow. In turn, this will continue to drive up the dividend and shareholder returns. The stock has been a fantastic one for dividend income in the last 20-plus years, with 25 years of consecutive dividend increases and a compound annual dividend growth rate of 21% in that time period.
Tourmaline Oil: Special dividends boost income for shareholders
Canada’s largest natural gas producer, Tourmaline Oil Corp. (TSX: TOU), has risen its payouts significantly over the least few years. In fact, in the company’s latest third-quarter results, a special dividend of $0.50 per share was paid out. This brought the total of special dividends paid in 2024 to $2 per share. And it follows many special dividend payments in the previous two years.
So what’s behind this dividend windfall for shareholders? Well, Tourmaline has been benefitting from very positive fundamentals in the natural gas industry as well as from its low-cost operations. Although natural gas prices suffered from a weak patch in 2024, Tourmaline continued to operate exceptionally well. This drove strong cash flows and profitability. Looking ahead, there are a couple of reasons that I think Tourmaline will continue to post strong dividend growth for income investors.
Firstly, the liquified natural gas, or LNG, industry is creating significant demand for North American natural gas. This has already been the case but it’s accelerating. The start-up of LNG Canada is expected in 2025. This will drive additional strong demand for natural gas in the next few years, hence driving natural gas prices higher. Also, electric power demand and coal switching will boost demand for natural gas.
Tourmaline stock is currently yielding 2%, but this does not include special dividends, which have been significant over the last few years.
