Upfront dividend yields may be what attracts income-focused investors to a stock, but let’s not forget about the dividend growth potential. If you have plans to hang onto a stock for more than five years, or even a decade, perhaps dividend growth prospects matter even more than the yield you’ll lock in after hitting the buy button.
In any case, this piece will look at two proven dividend growers with respectable yields, strong fundamentals, and fairly predictable growth profiles. While their yields might not be the highest, I do find that the dividend growth prospects are highly underestimated by many.
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Barrick Mining
First up, let’s look at the gold miners, which have been explosive in recent years, thanks in part to the “debasement” trade and the surge in not only precious metals, but most industrial metals. While I’m bullish on the longer-term potential of the miners, I’d argue that much of the discount has vanished in recent months.
A name like Barrick Mining (TSX: ABX) still looks cheap at 15.9 times trailing price-to-earnings (P/E), but much of the low-hanging fruit seems to have been grabbed. Though I’m not against nibbling into a small position today, investors should be careful when it comes to any stock that’s gone parabolic in the past year. In the case of ABX, the shares have more than tripled in the last two years. The gains are backed by real fundamental improvements, as operating economics and leverage look quite compelling amid the great gold bull market.
That said, even if there’s no blemish on the macro story, pullbacks can happen after a heated run. And after a mild 11% dip, I do think that investors should be steady incremental buyers rather than table-pounders. If you can time your entry into the stock right, I view Barrick as a terrific long-term hold for the dividend growth potential. If gold continues its run, expect special dividend top-ups and generous hikes every year or so.
While gold itself isn’t a productive asset, its miners definitely look as bountiful as they ever have, and for that reason, I’d be a buyer of dips. In short, Barrick is a cautious buy for investors who know the type of volatility that can arise after historic bull runs.
TC Energy
TC Energy (TSX: TRP) is another stellar dividend grower that’s been on the high track of late. The stock boasts a 4% dividend yield. If you haven’t checked in on the $91 billion pipeline darling of late, you might be surprised to learn that the yield is no longer above 5%. Despite the compressed yield, though, the dividend is in the growth fast lane.
The stock is up 24% in six months, and while a dip might not be too far off, I view the fundamentals as supporting continued upside. Like with Barrick, just be careful because dips can happen due to no fault of the company itself. When it comes to such hot, fundamentally sound stocks, dollar-cost averaging can be a friend of long-term investors looking to build a position. If you’re shy on energy dividends, TRP stock stands out as a must-watch, especially if the latest year-to-date spike precedes a correction.
