One of the benefits of owning dividend growth stocks over the long term is that you often get strong share price gains as well.
But in the short term, dividend growth stocks aren’t always showered with affection by investors. A quick check of the S&P/TSX 60 index of big blue chips shows a few stocks with double-digit dividend growth over the past five years and double-digit share price declines the past 12 months.
If you’re looking for opportunities to get into proven dividend growth stocks at marked down prices, check this list for stocks to research further:
- Canadian Natural Resources (CNQ): Energy stocks aren’t a great hunting ground for dividend growth because the amount of cash paid out to shareholders every quarter is dependent on oil and gas prices. Low oil prices in late 2018 argue for caution here, but CRQ is still a company that has posted annualized five-year dividend growth of 21 per cent. Investors have rewarded the company by slashing its share price in the past 12 months by more than 20 per cent. That put the yield around 3.8 per cent as of Dec. 11.
- Canadian Tire Corp. (CTC.A): This retailing icon has increased its dividend by 16.7 per cent on an average annual basis over the past five years. The share price is off 13.4 per cent in the past 12 months, which brings the yield to about 2.4 per cent.
- Enbridge Inc. (ENB): Enbridge’s problems have been widely documented – the company has a large debt load and interest rates have been rising. And yet, Enbridge delivered a 10-per-cent dividend increase for 2019 and said it anticipates another 10 per cent in the following year. Five-year dividend growth comes in at 16.4 per cent, while the 12-month loss for the share price was almost 15 per cent. The yield of 6.2 per cent reflects a high degree of investor angst.
- Magna International (MG): Global trade uncertainties have contributed to a decline of 15.5 per cent in the past 12 months for the shares of this auto parts company. But five-year dividend growth has averaged close to 15 per cent. The yield was around 2.4 per cent.
The correlation between dividend growth and share price gains over the long term was documented in a Q&A I did recently with the soon-to-retire dividend investing specialist Tom Connolly. A quick example: Canadian National Railway (CNR) had increased its dividend by an average 14.7 per cent over the past 10 years and its share price has grown by 15.8 per cent on average.
CNQ, CTA.C, ENB and MG have fallen off this track of parallel dividend growth and share price gains. If this is a short-term interruption, then there’s a buying opportunity here.
Rob Carrick