Dividend Growth vs. High Yield: Which Builds More Income Over Time?

Dividend growth vs. high yield: Which builds more income over time? Compare Canadian National and SmartCentres to see how the strategies stack up.

Key Points
  • Dividend Growth vs. High Yield: Exploring the benefits of Canadian National's dividend growth and SmartCentres' high yield for income investors.
  • Investment Analysis: A $10,000 investment in Canadian National offers a 2.22% yield and substantial future growth, while SmartCentres provides a 7.06% yield for immediate income.
  • Long-term Outlook: Canadian National surpasses SmartCentres in annual dividend income after 18 years, highlighting patience versus immediate income needs.

One of the biggest questions facing income investors is whether to chase dividend growth vs. high yield. Both offer advantages and can provide a good income.

But which one generates more income over time?

Let’s look at an example of both and stack them up with an example $10,000 investment held over a longer period of time.

dividend growth for passive income

Source: Getty Images

Dividend growth: Canadian National

Representing the dividend growth case is Canadian National Railway (TSX: CNR). Canadian National is one of the largest railways in North America with a rail network that stretches over 30,000km.

That rail network hauls essential goods, raw materials and finished products to markets, ports and warehouses across the continent.

The sheer size and necessity of the goods it hauls makes Canadian National one of the most defensive picks on the market. That large rail network also offers a competitive advantage that comes in the massive capital, approvals and time needed for a competitor to build a competing network.

Turning to income, Canadian National offers a quarterly dividend that carries a yield of 2.2% as of the time of writing. Given our initial $10,000 investment, that means Canadian National would provide an annual income of $222.

Dividend growth, not yield, is where Canadian National stands out. The company has amassed a streak of 30 consecutive annual increases to that dividend.

The most recent increase was a 3% hike for 2026 that brought the quarterly payout to $0.92 per share.

And each of those annual bumps to the dividend provides a bump to the income generated from that initial investment. Over the course of a decade or two, that can compound into a much higher and more attractive income stream.

Dividend Yield: SmartCentres

Representing dividend yield is SmartCentres (TSX: SRU.UN). SmartCentres is one of the better-known REITs in Canada. The company owns a massive portfolio of properties across the country that are predominantly essential retail.

Those properties often come with well-known anchor tenants that provide substantial foot traffic. In fact, many of SmartCentres’ properties are anchored by Walmart.

In terms of diversification, SmartCentres also has a growing portfolio of mixed-use development sites. That includes both self-storage sites and residential properties. Earlier this year, SmartCentres reported an occupancy rate of 98.1% across its portfolio.

Turning to income, SmartCentres offers a monthly distribution that carries a yield of 7.1%. Given that initial $10,000 seed investment, SmartCentres would generate $706 per year in income.

Dividend growth vs. high yield: Which one works better?

Let’s revisit that original $10,000 investment in each company with a few assumptions.

For this example, let’s assume Canadian National increases its dividend by 7% annually, while SmartCentres maintains its current distribution. Neither investment has its dividends reinvested.

After 10 years, Canadian National’s income would grow from $222 to nearly $437. That’s nearly double the original payment.

SmartCentres, meanwhile, would still generate $706 annually, maintaining that advantage for a few more years.

Under those same assumptions, however, Canadian National would surpass SmartCentres in annual dividend income after about 18 years. SmartCentres would still have generated more total dividend income over those 18 years. Canadian National would only take the lead in annual income at that point.

SmartCentres has the advantage for investors looking for income today. Canadian National could appeal more to those willing to wait for dividend growth.

Both are great investment options to consider for long-term portfolios. Why not own them both?

Fool contributor Demetris Afxentiou has positions in Canadian National Railway. The Motley Fool recommends Canadian National Railway, SmartCentres Real Estate Investment Trust, and Walmart. The Motley Fool has a disclosure policy.

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