Gordon Pape: Six dividend growers for income investors

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This is the best of times to be an income investor. The market value of almost every income security you own has shot up in recent months, making you much richer than at the start of the year.

This is the worst of times to be an income investor. The yields on your securities have tumbled as share prices rose.

Contradictory statements, yes, but these are the times in which we're living. As interest rates drift ever lower, yield-hungry investors have been scrambling for cash flow. The stock market is about the only place to find it, which means taking on risk that may be beyond many people's comfort level.

Portfolio balance is one way to reduce that risk. Keep some of your money in bond funds and cash to cushion the blow if stocks pull back. And when you're considering which stocks to buy, focus on companies with the potential to increase dividends/distributions on a regular basis, not on those with the highest current yield. Here are six to consider from our Recommended lists.

• Enbridge Inc.: Enbridge has a long history of annual dividend increases but it has recently stepped up the pace. The 2015 increase was an eye-popping 33 per cent, to $1.86 a share annually. The company followed that up with a 14-per-cent boost at the start of 2016, to $2.12 a share. Management has set a target of annual divided growth of between 14 per cent and 16 per cent a share through 2019. TSX price: $53.01. Yield: 4 per cent.
• TransCanada Corp.: Pipeline companies are usually good dividend growers and TransCanada is no exception. The company has raised its dividend every year since 2000, and is planning to continue the increases at a rate of between 8 per cent and 10 per cent annually until the end of 2020. The current rate is 56.5 cents per quarter ($2.26 a year). TSX price: $60.38. Yield: 3.7 per cent.
• Brookfield Infrastructure Partners LP: This Bermuda-based limited partnership is a spinoff from Brookfield Asset Management. It invests in infrastructure assets around the world, mainly in North and South America, Australia, and Britain. The partnership has a policy of paying out between 60 per cent and 70 per cent of its funds from operations in the form of shareholder distributions, with a target annual distribution growth of between 5 per cent and 9 per cent. The 2016 increase was 7.5 per cent to 57 cents (U.S.) per quarter ($2.28 a year). TSX price: $61.50. Yield: 4.8 per cent.
• Brookfield Renewable Partners LP: This is another Bermuda-based Brookfield spinoff. In this case, the assets in the portfolio are renewable energy facilities, mainly hydroelectricity but with some wind farms. Its policy is to distribute 70 per cent of its funds from operations to unitholders, with a target range for annual increases of between 5 per cent and 9 per cent. This year’s increase was 7 per cent to 44.5 cents per unit ($1.78 annually). TSX price: $40.78 (Canadian). Yield: 5.7 per cent.
• Telus Corp.: Telecommunications companies are another good source for finding above-average dividend growth potential. Vancouver-based Telus has announced its intention to continue semi-annual dividend increases from 2017 through to the end of 2019. The total annual increase will be in the range of 7 per cent to 10 per cent. The company increased its dividend by 5 per cent in July, 2015, by 4.8 per cent in January, and by a further 4.5 per cent in July. The quarterly dividend is now 46 cents a share ($1.84 annually). That’s up by 15 per cent since the start of 2015. TSX price: $42.89. Yield: 4.3 per cent.
• Canadian Real Estate Investment Trust: Some REITs can be quite stingy when it comes to raising their distributions. RioCan REIT, which I recently advised selling, falls into that group, as does Crombie REIT. But a few have a strong record of distribution increases and one of them is Canadian REIT. It has raised its distribution six times since March, 2012, for a total increase over that period of just over 27 per cent. The current rate stands at 15.25 cents per month ($1.83 a year). TSX price: $50.42. Yield: 3.6 per cent.

Although these are proven dividend growers and most of these companies have established targets for annual increases, nothing is guaranteed. A reversal in company fortunes could force the directors to eliminate future increases or even cut the dividend in extreme circumstances. I don't regard that as likely in any of these cases but a prolonged downturn in the economy could change the situation.

Also, keep in mind that yield-hungry buyers have bid up the prices on these stocks in recent months, to the point where most are trading at near record highs (Enbridge is the exception). Conservative investors may wish to wait for a market correction (which I believe will happen soon) before taking new positions or adding to existing ones.

Disclosure: The author owns the six securities profiled.

Gordon Pape is editor and publisher of the Internet Wealth Builder and Income Investor newsletters. For more information and details on how to subscribe, go to buildingwealth.ca.