Arjun Deiva, CFA, is an MBA candidate at the University of California, Berkeley, Haas School of Business.
What are we looking for?
The fastest-growing Canadian dividend payers with a proven track record.
The screen
The past five years have been marked by significant turbulence in the stock market, driven by events such as the COVID-19 pandemic, the Russia-Ukraine war, surging inflation and shifting monetary policy. Amid such uncertainty, dividend payments offer investors a valuable source of consistency.
While dividend yield is an important metric for income seekers, dividend growth is a more robust indicator of stability. Since companies typically cut dividends only as a last resort during financial distress, a growing dividend signals management’s confidence in the company’s ability to sustain payouts in the future.
To identify resilient dividend growers, I used the screening tool from FactSet, a financial data and analytics provider, and applied the following parameters:
- Traded on the S&P/TSX Composite Index
- Market capitalization greater than $1-billion
- Five-year annualized dividend growth rate greater than 10 per cent
- Positive forecasted dividend, sales and earnings growth next year according to analyst estimates
- Dividend coverage ratio, a measure of a company’s ability to sustain its dividend using company earnings, greater than three
- Interest coverage ratio, a measure of a company’s ability to pay interest on debt obligations, greater than three
The 11 remaining companies were ranked by a multifactor ranking of dividend coverage ratio, interest coverage ratio, and one-year forecasted dividend, sales and earnings growth.
What we found
The companies that passed our screen may have lower dividend yields than income investors are accustomed to. This is because it prioritizes resilience in challenging market conditions and future growth potential over high current dividends. A company with a high dividend yield but weak fundamentals is more likely to underperform compared with a peer with a lower yield but robust growth prospects. Notably, the companies that passed achieved an average one-year total return of 27.2 per cent, significantly outperforming the 15.20-per-cent return of the S&P/TSX Composite High Dividend Index.
Dollarama Inc. DOL-T, a Canadian dollar-store retail chain, topped our screen with a one-year estimated dividend growth rate of 30.6 per cent. I urge investors to look beyond Dollarama’s relatively low dividend yield of 0.3 per cent, as analysts are forecasting substantial growth. With the highest dividend coverage ratio on our screen at 17.5 times, Dollarama is well positioned to continue increasing dividends in the years to come. Furthermore, the company’s business model is centred around offering consumer staples at discounted prices, providing a buffer against economic downturns.
Imperial Oil Ltd. IMO-T, an integrated oil and gas producer, ranked No. 2 on our screen with a one-year estimated dividend growth rate of 23.2 per cent. Its stock has surged over the past five years, achieving a total return of 259.8 per cent and benefiting from elevated crude oil prices. Moreover, Exxon Mobil, one of the largest oil and gas producers in the world, has a 69.6-per-cent ownership stake in Imperial Oil – adding an extra layer of support during challenging market environments.
The information in this article is not investment advice. The author assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained above.