Skip to main content
portfolio strategy

Add this to the challenges faced by investors today: We're in a dividend growth recession.

Stocks that qualify as dividend growers increase the amount of cash they pay to shareholders on a consistent basis, usually once per year. Back in 2007, just before the global financial crisis, Shaw Communications was Canada's dividend growth leader with a phenomenal 10-year annualized increase of 43.8 per cent. Data from shows the company's cash payouts have grown by 6.1 per cent in the past five years and 7.7 per cent in the past 12 months.

Dividend growth remains one of the most widely beneficial investing goals to pursue because it provides a rising flow of income and more often than not leads people to financially strong, consistently profitable companies with good potential for share price gains. But let's recognize that things aren't what they used to be for some dividend growers. Back in September, 2007, I used this space to present a list of 20 dividend growth stars in the Canadian stock market. The average 10-year dividend growth rate at the time was 20.3 per cent, with Shaw sitting at No. 1 and Toronto-Dominion Bank completing the list at 15.1 per cent.

Just as the stock market was nearing its pre-financial-crisis high water mark back then, so was dividend growth. And just as share prices are still shy of their previous highs, so are dividend growth rates for some blue-chip stocks. That's the conclusion to be drawn from the post-crisis dividend growth records of the 18 dividend growth stars of 2007 that are still traded on the TSX. The average five-year growth rate according to is just 2.6 per cent, which represents a blending of weaker growth and, in several cases, dividend cuts.

Dividend expert Tom Connolly has noticed the trend of declining dividend growth himself. The stocks he follows increased their dividends by almost 16 per cent in 2007; the most recent comparable number was about 12 per cent. "I expect dividend growth to go down a bit more," said the long-time publisher of a dividend investing newsletter called the Connolly Report.

Dividend growth may be the clearest example of how our weak economy is affecting investment returns. Share prices are a less useful indicator because they're affected as much by global factors like demand for commodities as they are domestic economic conditions. Here in Canada, growth in the economy has an impact on whether corporate profits are growing enough to pass along dividend hikes. There's also a confidence factor here. Weak growth prospects may undermine the willingness of corporate executives to raise expectations of generous year-by-year dividend increases.

Based on current economic growth prospects, investor expectations for dividends should be modest. The Bank of Canada is forecasting growth of 1.1 per cent this year, 2 per cent next year and 2.5 per cent in 2017. The latter two estimates were downgrades from earlier, more optimistic predictions.

Mr. Connolly said he's targeting dividend growth of 5 per cent for the next few years, but believes 6 or 7 per cent might be possible. His dividend stocks have maintained stronger growth than my 2007 list for one simple reason: My list was based on dividend growth, period, while Mr. Connolly is much choosier in selecting stocks. For one thing, he avoids resource companies.

Energy and mining stocks had a fling as dividend darlings when commodity prices were strong in the mid-2000s, but the recent slump in prices for metals and energy has taken care of that. That's why Teck and Encana, both stars of 2007, have such dismal dividend growth numbers today.

Mr. Connolly sticks religiously to companies with strong recurring cash flow like telecoms and utilities. This helped him avoid Reitmans and AGF Management, both of which ranked high up on the 2007 list of dividend growers. Today, they're both high-yielding dividend stocks, which are a much different animal than dividend growth stocks. High dividend yields suggest investors are pessimistic about a company for reasons that may include concerns about sustainability of the dividend. Dividend growth companies tend to have more robust share prices because investors are counting on continuing increases in the quarterly cash payout.

Mr. Connolly believes dividend growth rates will keep declining because of continuing economic weakness. This view is supported by recent trends for bank dividends. Three banks made the list of star dividend growers of 2007 – Royal Bank of Canada, Bank of Nova Scotia and TD Bank. Each has a respectable five-year dividend growth record and a one-year growth rate that is lower. data show that RBC's five-year growth rate is 9.6 per cent, while its one-year rate is 5.3 per cent.

There are exceptions to the trend of declining dividend growth, notably Canadian National Railway. CN's recent five-year rate is pretty much right on the 10-year rate it showed in 2007, and the one-year growth rate is even better. Metro's a little off its growth rate of 2007, but its strong one-year rate highlights the dividend growth consistency of this supermarket chain. Toromont Industries is also reasonably close now to its 2007 standard of dividend growth (disclosure note: I own shares of both CN and Toromont).

There are also signs of resurgence at some of the firms that have been in a long dividend-growth slump, notably the Power group of companies. Power Corp. of Canada, Power Financial and Great-West Lifeco (it's part of Power Financial, which is in turn controlled by Power Corp.) have all posted one-year dividend growth rates well in excess of their average growth of the past five years. They're still not where they were in the 10 years leading up to September, 2007, but a lot of companies are in that position.

How to track dividend growth

The investor relations page of a dividend-paying company's website will usually have a multiyear listing of dividends paid. That's one way to keep track of dividend growth over the years. Another is to use the watchlist feature on

Create a watchlist and add the dividend stocks you want to follow. Then, select Dividends from the pulldown menu labelled View. Both one- and five-year dividend growth rates will be displayed, along with one- and five-year total returns (share-price changes plus dividends).

Click here to download an excel version of this table

Catching up with dividend growth stars of the past

These stocks were listed in a September 2007 Portfolio Strategy on top dividend growth stocks. As you'll see here, most have lost momentum as dividend growers in recent years, and some have had to cut their dividends. Recent data are to Oct. 28.