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investor clinic

In your columns, you often refer to the dividend growth rate for particular companies. Where do you get this information?

I usually get my data from the Bloomberg terminal, which provides annualized dividend growth rates for five-, three- and one-year periods. Most people don't have access to a Bloomberg machine, of course, but you can get much of the same information from

The first thing you need to do is set up a Watchlist of stocks. Then locate the "View" dropdown menu at the top right of your Watchlist, and select "Dividends." This view provides several columns of dividend-related data, including the annualized dividend growth rate for five-year and one-year periods. It also provides the dividend per share, yield, payout ratio (as a percentage of cash flow) and annualized total returns (share price change plus dividends) over five-year and one-year periods. (Tip: Hover your pointer over the column headings to see a definition of each one).

A nice feature of the Watchlist is that you can sort the stocks from highest to lowest, or vice versa, based on any of the columns. For example, in my own Watchlist, the stock with the highest five-year annualized dividend growth rate is Tim Hortons, at 26.2 per cent. Other top five-year dividend growers on my list are Enbridge (13.6 per cent), McDonald's (10.1 per cent), Telus (9.9 per cent) and Toronto-Dominion Bank (9 per cent). (Disclosure: I own all of these stocks.)

You can also determine a stock's dividend growth rate by using the company's historical dividend data and an online compound interest calculator, such as this one, which allows you to solve for different variables in the equation. It sounds complicated, but it's actually very straightforward.

Continuing with the Tim Hortons example, you can look up the company's dividend payment history on the investor relations section of its website (most companies provide this information). Five years ago, Tim Hortons' quarterly dividend was 10 cents a share. The company is now paying 32 cents a share, for an increase of 22 cents a share or 220 per cent.

To figure out what that works out to on an annual basis, fire up the compound interest calculator and click the box that says you want to solve for the "rate." Then enter 10 for "principal," 5 for "years" and 32 for "total" and choose a compounding period (I picked one year). According to the calculator, Tim Hortons' dividend grew 26.2 per cent annually over the past five years, which is identical to what the Watchlist says.

Dividend growth is backward looking, of course, but if a company has a long history of dividend increases it often can be a sign of a business with staying power. Many U.S. companies have been raising dividends for decades – McDonald's, Coca-Cola, Johnson & Johnson and Procter & Gamble to name a few. These stocks have produced hefty returns for long-term investors, particularly when dividends were reinvested in additional shares.

There are no guarantees that a company with a solid dividend growth track record will continue raising its payment, which is why it's important to look at other factors as well, including revenue and earnings growth and the firm's competitive position, pricing power and expansion opportunities. But a history of dividend growth can be a positive first sign when evaluating companies for possible investment.