Follow dividend growth if you want a short-cut to the best of blue-chip Canada.
Strong dividend growth often comes right alongside strong share price growth over the long term. Where there's consistent dividend growth, there's often a well-run, profitable business. Net result: Outsize total returns, especially in the context of the blue-chip universe of mature companies.
We can't get too carried away by the correlation between dividend growth and strong total returns because blue-chip stocks in general have surged in the past Five-years. But even if we make allowances for this being a blue-chip led market, there's still some strong evidence of dividend growth being associated with impressive total returns.
Let's look at the top dividend growers of the past Five-years in the S&P/TSX 60 index of big, heavily traded stocks. We'll further refine our list by leaving out resource stocks, which pay dividends at rates that are subject in large part to the ups and downs of commodity prices.
Globeinvestor.com data shows that Tim Hortons Inc. (THI) has the best dividend growth record in the past Five-years among non-resource stocks at 26.2 per cent annually on average. It happens that THI has the sixth-best total return among 60 index stocks for the past Five-years at 24.4 per cent per year on average. To be fair, TIH has been steady performer in recent years, but it really took off after a proposed buyout by Burger King was announced recently.
Canadian Tire is another top dividend grower with a strong total return. Dividend growth over the past Five-years came in at just under 19 per cent per year, while the average annual total return was 15.6 per cent.
A few other top dividend growers to consider:
Five-year dividend growth of 16.9 per cent, a five-year total return of 17 per cent.
Canadian National Railway
Five-year dividend growth of 14.6 per cent, a five-year total return of 25.5 per cent.
Five-year dividend growth of 13.6 per cent, a five-year total return of 24.5 per cent.
Five-year dividend growth of 12.4 per cent, a five-year total return of 17 per cent.
Five-year dividend growth of 9.9 per cent, a five-year total return of 20.9 per cent.
One further thought on these stocks concerns the potential for a stock market downturn. In uncertain times, a strong dividend growth record could provide at least a bit of a cushion for a stock.