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There will be no let-up this year in the number of investors putting faith in dividend stocks to deliver the income they cannot get from safer options like bonds and guaranteed investment certificates.

We’ve heard a lot about the risks of using dividend stocks to generate income, notably that you forgo the stabilizing effect bonds bring when stocks crash. Now, let’s explore one of the benefits of dividend income. When you hold stocks with a record of consistently increasing their cash payouts to shareholders, you get a flow of income that grows by amounts that can easily exceed the inflation rate.

Tom Connolly of has assembled a list of Canadian-listed stocks he follows that includes their long-term dividend growth rate. Let’s dip into the list to find stocks with a 10-year annualized dividend growth rate of 7.2 per cent or more. Under the Rule of 72, you divide 72 by your rate of growth to see how long it will take to double your money. With a 7.2-per-cent growth rate in dividends, you have a double on your hands in 10 years.

Numbers like these must always be considered as backward-looking and not in any way an indicator of what’s ahead. This warning needs to be doubly considered as we head into an uncertain economic situation in 2021. Will the economy rebound quickly when the pandemic recedes? Will there be much inflation? Will some sectors lag while others take off?

Still, the search for dividend growth has to include companies that have done the job in the past decade. Here is a group of them with dividends, as calculated by Mr. Connolly, that increased by more than an average 7.2 per cent annually from 2010 through November, 2020.

  • Canadian Tire Corp. Ltd. (CTC.A-T): Dividend compound annual growth rate of 18.4 per cent.
  • Canadian National Railway Co. (CNR-T): 15.6 per cent
  • Metro Inc. (MRU-T): 14.6 per cent
  • Enbridge Inc. (ENB-T): 14.3 per cent
  • Atco Ltd. (ACO.X-T): 12.6 per cent
  • Toronto-Dominion Bank (TD-T): 9.8 per cent
  • Intact Financial Corp. (IFC-T): 9.4 per cent
  • Telus Corp. (T-T): 9 per cent
  • Canadian Utilities Ltd. (CU-T): 8.6 per cent
  • National Bank of Canada (NA-T): 8.5 per cent
  • Manulife Financial Corp. (MFC-T): 8 per cent
  • Royal Bank of Canada (RY-T): 7.9 per cent
  • Emera Inc. (EMA-T) 7.9 per cent
  • Imperial Oil Ltd. (IMO-T): 7.4 per cent
  • TC Energy Corp. (TRP-T): 7.4 per cent

Another risk of investing in dividend stocks is a reduction or suspension of cash payouts to shareholders. Three on this list have cut dividends in the past – Manulife in 2009, Telus in 2001 and TC Energy, back in 1999 when it was TransCanada PipeLines.

A lesson on being cautious about using these dividend increases as a guide to what’s ahead can be found with Enbridge, which recently raised its dividend by 3 per cent. That’s ahead of the inflation rate recently, but far less than the long-term trend.

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