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yield hog

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When it comes to dividend investing, most people enjoy a juicy yield.

But a big dividend isn't always a blessing. If a company's earnings aren't growing, a high yield can be a red flag: The investing landscape is littered with companies that were forced to cut their fat payouts as their sales, earnings and share prices headed south.

Just as investors shouldn't buy a stock based on its high dividend alone, they shouldn't ignore a stock because it has a small yield. If the dividend is growing quickly – and sales and earnings are also climbing steadily – a low-yielding stock can often turn out to be a better investment than a mature, slow-growing company with an eye-popping yield.

Today, I'll be discussing three companies that recently announced hefty dividend increases. Their yields may not turn many heads, but their total returns – from share-price appreciation and dividends – have been impressive. There are risks with any stock, so be sure to do your own due diligence before investing in any security.

CCL Industries (CCL.B)

Price: $288.50

Yield: 0.8 per cent

Dividend increase: 15 per cent

Date of increase: Feb. 23

Let's be honest: CCL's yield is basically pocket change. And its business – making consumer product labels and containers – isn't very sexy, either. But the stock's five-year annualized total return of more than 53 per cent – including six dividend increases – has been nothing short of spectacular. Through a combination of internal growth and acquisitions in the highly fragmented global label and packaging industry, "CCL has transformed itself into a free cash flow machine," CIBC World Markets analyst Scott Fromson said in a recent note in which he initiated coverage with an "outperformer" rating and 12- to 18-month price target of $320.

CCL isn't cheap – it trades at about 23 times estimated 2017 earnings – but the premium valuation is warranted, Mr. Fromson said. CCL's global footprint in 35 countries and its broad product offerings have given it an edge with multinational food, beverage, health-care and automotive customers. What's more, CCL focuses on acquisitions that expand its customer base and geographic reach, while being careful not to overpay or take on excessive debt, he said. Although reinvesting cash internally and making acquisitions will likely remain CCL's focus, the dividend will almost certainly continue to grow. A proposed five-for-one stock split, slated to take effect in May, aims to improve the stock's liquidity and broaden CCL's investor base.

Premium Brands Holdings (PBH)

Price: $81.20

Yield: 2.1 per cent

Dividend increase: 10.5 per cent

Date of increase: March 16

Even if you haven't heard of Premium Brands, you may have eaten some of its products, which include deli meats (Piller's, Grimm's and Harvest Meats, among other brands), sandwiches (Oven Pride, Hygaard, Quality Fast Foods) and baked goods (Stuyver's, Island City Baking). What really got investors' mouths watering were the company's record fourth-quarter revenue and adjusted earnings, which jumped 33 per cent and 57 per cent, respectively, driven by organic growth and acquisitions. And there's more to come: The company has two large facilities under construction – a 212,000-square-foot sandwich plant in Phoenix and a 105,000-square-foot meat- and seafood-processing and distribution centre in Toronto. The new facilities, combined with several acquisitions expected this year, will expand Premium Brands' geographic reach and enable it to serve additional customers across Canada and the United States.

In a recent note, BMO Nesbitt Burns analyst Stephen MacLeod said Premium Brands has done a good job of capitalizing on consumer trends, such as growing demand for ethnic food, healthy fare and convenient meals. "We expect these secular trends to provide support for organic growth across Premium Brands' businesses over the next several years," he said. But the stock – which has posted a sizzling five-year annualized total return of 43 per cent – trades at a rich multiple of more than 26 times estimated 2017 earnings and Mr. MacLeod rates it "market perform" with a price target of $83. Investors might want to wait for a pullback before they take a bite.

Aecon Group (ARE)

Price: $16.96

Yield: 2.9 per cent

Dividend increase: 8.7 per cent

Date of increase: March 7

As Canada's largest publicly traded construction firm, Aecon builds a lot of the things that make our economy run: roads, bridges, power plants, water-treatment facilities, airports and pipelines, to name a few. It's also built something else: an impressive dividend-growth record, with annual increases in each of the past six years.

Following Aecon's better-than-expected fourth-quarter results, Raymond James analyst Frederic Bastien raised his rating on the shares to "outperform" from "market perform" and hiked his price target to $19 from $17, citing Aecon's "diversified strategy, its rock-solid balance sheet and its leadership position in two of Canada's most promising construction segments – mass transit and nuclear power refurbishment." With a $4.2-billion project backlog and the potential to win additional federal infrastructure work over the next few years, Aecon is in a strong position and stands to benefit even further if energy and commodity markets rebound. That should help the stock build on its five-year annualized total return of 7.3 per cent.