Last month we looked at the Canadian dividend aristocrats, a list of companies that have increased dividends each year for the past five years. The list of stocks is a good starting point for dividend investors, but it also reveals a number of flaws when looking to invest in a company.
Some companies grow their dividend by a small amount in order to remain on the list, while others ignore poor earnings and continue to distribute more in dividends then they earn.
That’s why it’s important to include additional criteria in your search for the best dividend stocks. One thing to look for is the 5-year average dividend growth rate, which shows how consistently a company raises its dividend over time.
I ran a stock screen that looked for companies that have increased dividends by 20 percent or more for the past five years and that have grown earnings per share (EPS) by 20 percent per year for the past five years.
The results showed seven companies that have produced five years of double digit dividend growth and double digit growth in earnings per share. Here’s what we found:
|Symbol||Name||Dividend growth 5-year avg.||EPS growth 5-year avg.|
|MDA||MacDonald Dettwiler and Associates||30.0%||46.5%|
Agrium had paid 11 cents per share in 2008 and 2009, distributing 5.5 cents twice per year. In 2010, the company increased its dividend to 16.5 cents, but the following year the dividend was bumped up to 72.5 cents. This year they’ll distribute a whopping $2.25 per share in dividends, ignoring a short-term slump in potash sales and predicting stronger global demand in the long term. The current dividend yield is 3.53%.
Another fertilizer stock, Potash Corp, has faced a challenging year so far but has shown signs of life following its 52-week low in August. Like Agrium, Potash held its dividend steady for three years, paying 13.3 cents per share from 2008-2010, before ramping up distributions. In 2011, the company paid 24.3 cents per share and then more than doubled its dividend to 56 cents per share last year. This year, Potash will pay $1.19 per share, for a dividend yield of 4.53%.
Tim Hortons began paying a dividend in 2009 and has been a dividend growth stalwart ever since. The iconic Canadian company paid 52 cents per share in 2010 and bumped up its distribution to 68 cents in 2011 and 84 cents in 2012. This year, Tim Hortons will pay out $1.04 per share for a dividend yield of 1.67%.
Constellation Software has been on a tear of late, nearly doubling since reaching a 52-week low in February. The small-cap technology company currently trades around $190 and pays a dividend of $1 per quarter, for a yield of 2.2%.
Glentel is the largest independent mobile phone retailer in Canada. Its dividend story is one reason why the 5-year dividend growth rate is such an important screening metric. Glentel paid 27.5 cents per share in 2008 and increased its distributions annually from 2008-2011 before slashing the payout briefly in late 2012. The company is back on track and this year will pay out 50 cents per share for a 3.51% dividend yield.
Rogers went through a rocky ride this summer when rumours surfaced that U.S. telecom giant Verizon was considering entering the Canadian wireless space. The stock has rebounded nicely, and pays a healthy 3.67% dividend yield. Rogers has raised its dividend each year for the past seven years and currently pays out $1.74 per share.
MacDonald Dettwiler and Associates
MacDonald Dettwiler and Associates is another small-cap technology company that has seen its share price soar this year. The company began paying a dividend in 2011, distributing $1 per share, and has since increased its payout to $1.30 per share. The dividend yield is 1.63%.
This type of screen can narrow down a long list of companies, like the 59 stocks that make up the Canadian dividend aristocrats, into a smaller group that is much easier to digest and research. It weeds out the companies that haven’t grown their dividend, as well as the companies that don’t have the earnings to support their dividend growth.
Related: Dividend investing – getting started
Three of the seven companies are also represented on the dividend aristocrats list: Rogers Communications, Constellation Software, and Tim Hortons.
As always, do your own research and due diligence before you invest.