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Number Cruncher

A decade of dividend growth: more upside, less downside Add to ...

What we’re looking at

Companies that regularly increase their dividends. Dividend growth investing is constantly praised, but what’s the real payoff?

Our screen

Morningstar CPMS, an equity research and portfolio analysis firm, has created a list of 20 TSX-listed companies that have increased their dividends the most since the end of 2001. Only companies that increased their dividends at least once per year over that period were included.

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What we found

On an individual basis, you can clearly see how dividend growth drives long-term share price growth. All but three of the 20 stocks on our list outperformed the S&P/TSX composite total return index since the end of 2001. The explanation is simple – a company that is increasing dividends steadily is solid, well run and likely to be increasing revenues and profits as well over time.

Note how low the current dividend yields are for the stocks on our list, with a few exceptions. When you go with a dividend growth strategy, you often have to sacrifice yield in the short term. Over time, though, rising dividends will steadily increase the yield you get on your investment.

Just for fun, CPMS looked at what would have happened if you invested equal amounts in all of these stocks at the end of 2001 and then rebalanced once per year to get back to equal weightings. The average annual return from inception to the end of 2010 was 17.1 per cent, compared to 8.9 per cent for the index. Even more impressive were the results over the past three years. The dividend growers made 10.4 per cent, while the index eked out a gain of just 0.8 per cent.

The worst decline over any 12-month period for the dividend stocks was 23.4 per cent; the worst for the index was 38.2 per cent. More upside, less downside. That’s the potential payoff from dividend growth.

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