Canadian Stocks That Are Raising Dividends in the Pandemic

WRITTEN BY Mathieu Litalien | UPDATED ON: May 27, 2020

Canadian Companies Raising Dividends

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**This article is a transcription of the video above. View our video on Canadian stocks that are raising their dividends on Youtube here**
Hi everyone, its Mat again from Stocktrades, and welcome to another video.

Today, we’re going to be looking at Canadian dividend stocks. But not just any dividend stocks.

We’re going to be looking at Canadian Dividend Aristocrats that have been raising the dividends despite the pandemic.

What is a dividend aristocrat?

For those of you who are unaware, Canadian Dividend Aristocrats are companies that have raised the dividend for at least 5 consecutive years.

There is an important distinction to make:

In the US, Aristocrats have streaks of 25 years or longer. In Canada, companies only need to achieve 5 straight years of dividend growth to be a Dividend Aristocrat.

With that being said, lets get to it and show you 3 Canadian stocks that are still raising dividends during the pandemic.

How are Canadian dividend stocks doing right now?

Before we get into the good news, lets take a step back and look at the entire dividend landscape.

Since the pandemic began, companies have been laser focused on preserving cash. This means there has been a high degree of dividend cuts or suspensions on the TSX.

In fact, I believe the pace is unprecedented. Having gone through the financial crisis, I can’t remember this many companies cutting or suspending the dividend so fast. As of filming, there are approximately 75 companies that have cut or suspended the dividend.

Not only that, Canadian Dividend Aristocrats, which are typically reliable income payers, are also cutting their dividends.

There are around 12 right now that have done so. Case in point, one of the most reliable energy companies in the world, Suncor Energy, recently slashed the dividend by 55%.

With the cut, it effectively ends the company’s 17 year dividend growth streak, and it will lose its status as a Canadian Dividend Aristocrat.

This is no small number of dividend cuts. We expect the cuts to continue, and it would not surprise me if we reach 100 over the next month or so.

The uncertain economic landscape is to blame

The pandemic has created a very uncertain landscape. This means companies are not sure what state they will be in financially in 6 months, a year or even 2 years down the road. This makes learning how to buy stocks extremely difficult.

In fact, Air Canada came out and said they may see negative revenue growth over the next 3 years. That is a fairly significant timeframe.

With respect to dividends, conserving cash is at the top of everyone’s list. Businesses need to remain liquid in case the recovery takes longer than thought. This is why you’re seeing so many cuts and temporary suspensions.

This isn’t necessarily a bad thing. In fact, it may be a sign of prudent management. However, as investors it stings nonetheless.

Those who rely on steady and reliable income suffer. Anyways, lets get into our first stock.

Franco Nevada (TSX:FNV)

When it comes to income and reliability, there is no safer stock than Franco Nevada. Earlier this decade, the price of gold cratered, and entered a multi year bear market.

Several gold producers cut the dividend. In fact, there was only one Canadian Dividend Aristocrat left standing. And that was Franco Nevada (TSX:FNV).

To this day it still remains the only TSX listed precious metal stock that is an Aristocrat. No other company has achieved 5 or more years of consecutive dividend growth.

That is a pretty impressive track record. Despite a prolonged bear market, Franco Nevada’s share price is actually up approximately 600% over the last decade.

In 2020, it is up an additional 60% or so, far outpacing the TSX Index, and outpacing the TSX Global Gold Index ETF.

When it comes to the dividend, Franco Nevada has a 12 year dividend growth streak. Over this period, it has averaged around 5% annual dividend growth.

This is not outstanding, however it is consistent and reliable income. And as a dividend investor, this is something that I look for.

The company’s payout ratio right now is at approximately 40%. This means that the dividend is safe, and it is stable.

The company’s probably holding back on raising the dividend by more because in recent years it has diversified into oil.

We all know what the price of oil is now. Oil accounts for approximately 15% of company revenue. So, unfortunately this is holding it back a little bit.

However, it is still a very reliable dividend gold stock.

A solid gold stock since its IPO

Since Franco Nevada’s IPO, it has returned approximately $1.3 billion in dividends to shareholders. Even though its yield may not be that attractive, it has a yield on cost of approximately 7% since its IPO.

This means its dividend is growing along with its share price.

On May 7th, the company raised the dividend by 4%, effectively extending its dividend growth streak to 13 years. Although it may not be attractive by its yield, Franco Nevada is one of the best in class gold stocks. We touched on it in our top gold stocks of the year video, and we believe as a streamer it is well positioned to raise dividends in a gold bull and bear market.

Franco-Nevada has the history to prove it. It’s more reliable than producers, and generates more consistent and reliable cash flows.

Alimentation Couche-Tard (TSX:ATD.B)

Alimentation Couche-Tard (TSX:ATD.B) has a rock solid 10 year dividend growth streak. Wait… Make that 11!

Because the company just raised dividends by 12% on May 7th. Now, this doesn’t mean a dividend cut is not in its future. But as of right now, it is on pace for its 11 consecutive year of dividend growth.

Is the dividend safe? Absolutely. The company has over $4 billion in liquidity. More than enough to navigate the current financial crisis. Not only that, it has a payout ratio of only 10%.

This is one of the lowest payout ratios among all Canadian Aristocrats.

You might be asking yourself, why would a company like Couche-Tard, which operates in an industry which has been significantly impacted by the COVID-19 pandemic, might be raising the dividend at a time like this?

The company recently walked away from an $8.8 billion deal to acquire Caltex Australlia. By walking away from this deal, the company essentially conserved cash. Although Couche-Tard indicate it may revisit the acquisition at a later date, at this point, it felt it was more prudent to walk away.

I think this is one of the main reasons the company was able to raise the dividend this time around. Had the company continued through with the acquisition, I am doubtful the dividend would have been raised.

In fact, Couche-Tard has skipped raising the dividend in the past because of acquisitions in the past. But I think this is why the company made the move this time around.

Couche-Tard is a solid investment

In terms of looking at Couche-Tard as an investment, the company has been one of the best growth stocks on the TSX. Income aside, the company’s share price has grown by over 1220% over the past decade.

That is an impressive rate. It has made several shareholders very wealthy.

Couche-Tard may not look like an attractive income stock, but there is no question it makes for an excellent investment choice for investors.

Algonquin Power (TSX:AQN)

The third and final stock that has been raising the dividend during a pandemic is Algonquin Power and Utilities (TSX:AQN).

This is a company that we have brought to your attention several times before.

It is a leading utility and renewable energy company, and we like it for several reason. For one, its growth. Secondly, its income.

The company currently yields around 4.5%, and it now has a decades worth of dividend growth behind it.

Over the company’s decade long growth streak, it has raised dividends by 10% annually. It is also the same dividend growth rate which it is targeting through 2022.

This is what we like about Algonquin. Not only has it been a reliable income stock, it also provides investors with insights and targets. Not very many companies provide a targeted dividend growth rate, and not many have a targeted dividend growth rate in the double digits.

Algonquin is delivering, and has proven to be a reliable income play. The company’s payout ratio is only approximately 40%, which for a utility is actually quite low. Therefor, we have no concerns with the company achieving 10% dividend growth through 2022.

In 2020, the company’s stock price hasn’t moved much. It hasn’t been an outstanding stock, but it is far outpacing the TSX index. Over the past decade, a $10,000 investment in the company would be worth around $50,000 today.

Not a bad return for a utility company that is known for providing stable and reliable income. That is the beauty of an investment in Algonquin.

Not only is the company an attractive income stock, but it is also one of the fastest growing utilities on the TSX Index. Analysts expect that the company is growing to grow earnings and revenue by approximately 15% over the next couple years.

Considering the company is only trading at 19 times forward earnings, we’d consider it to be trading at attractive valuations.

Income, value, growth. Algonquin provides a little something for everyone.

The pace of dividend cuts has been unnerving

This is especially true for those who’s investment strategy is centered around dividend growth. The entire premise is to increase and build your income, and see that income grow year over year.

These 3 stocks provide dividend growth investors with some hope in these market conditions. It’s not all doom and gloom. There are certain companies who are well positioned to raise and continue raising dividends well into the future.

If you’re interested, here is an article that keeps track of all the dividend cuts and suspensions since the start of this pandemic.

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