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With the S&P/TSX Composite Index up almost 34 per cent for the 12 months to June 30, it’s to be expected that some stocks are pricey.

Included in this group are some popular dividend growth stocks, banks among them. There may still be room for their share prices to increase as the economy recovers from the pandemic, but by one measure they appeared to be at least a bit pricey in late July.

A blog post a couple of weeks ago looked at dividend growth stocks that traded at reasonable prices. The stocks were included on a list of 23 stocks supplied by Tom Connolly of DividendGrowth.ca that compared recent dividend yields against the average yield from 2011 through 2020.

A recent yield that is above the long-term average suggests a stock is reasonably priced, while a current yield below the average suggests the stock is fairly valued or expensive. The background here is that yield and share prices move in opposite directions. If the yield is lower than usual, it suggests price growth has been strong recently.

Here are examples of dividend growth stocks listed on the Toronto Stock Exchange that can be seen as fairly priced or expensive when judged by yield:

  • National Bank of Canada (NA-T): A recent yield of 3 per cent, compared with a long-term average of 3.9 per cent. The annualized average increase in the dividend over this period was 7.5 per cent, while the average annual share price gain was 10.2 per cent.
  • Bank of Montreal (BMO-T): A recent yield of 3.4 per cent, compared with a long-term average yield of 4.2 per cent. The annualized average increase in the dividend over this period was 4.2 per cent, while the average annual share price gain was 8.3 per cent.
  • Rogers Communications Inc. (RCI.B-T): A recent yield of 3.1 per cent, compared with a long-term average yield of 3.5 per cent. The annualized average increase in the dividend over this period was 3.9 per cent, while the average annual share price gain was 6.2 per cent.
  • Toromont Industries Ltd. (TIH-T): A recent yield of 1.4 per cent and a long-term average yield of 1.9 per cent. The annualized average increase in the dividend over this period was 11.7 per cent, while the average annual share price gain was 18.8 per cent.
  • Emera Inc. (EMA-T): Globeinvestor.com shows the late July yield as 4.4 per cent, which compares with an average from 2011 to 2020 of 4.7 per cent. The annualized average increase in the dividend over this period was 6.6 per cent, while the average annual share price gain was 6.7 per cent.
  • Fortis Inc. (FTS-T): A recent yield of 3.6 per cent and a long-term average of 3.8 per cent. The annualized average increase in the dividend over this period was 5.3 per cent, while the average annual share price gain was 5.9 per cent.
  • Royal Bank of Canada (RY-T): A recent yield of 3.4 per cent, compared with a long-term average yield of 3.6 per cent. The annualized average increase in the dividend over this period was 7.5 per cent, while the average annual share price gain was 9.3 per cent.

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