Strong Earnings is a Great Sign for These Dividend Growth Stocks

We are in the midst of one of the busiest periods of the earnings season. Yesterday, some of the largest technology companies in the world such as Intel Corp (NASDAQ:INTC) and Alphabet (NASDAQ:GOOG) reported earnings that topped expectations.

Not to be outdone, there are two Canadian companies who have a strong history of dividend growth that topped analysts estimates yesterday. This bodes well not only for the company’s stock price, but future dividend growth.

Aecon Group (ARE.TO)

An engineering and construction firm, Aecon Group (TSX:ARE) posted strong second quarter earnings. Earnings of $0.31 per share beat by $0.09 and represented a 138% increase over last year’s second quarter. Likewise, revenue of $867 million jumped 15% and beat estimates by $97 million.

As of end of June, the company’s backlog grew to $6.755 billion, a 5% increase.  The company expects its strong performance to continue well into 2020. This coincides with our views that it is one of the companies best positioned to take market share from SNC Lavalin (TSX:SNC). SNC’s struggles have been well documented and its competitors are gobbling up market share.

Aecon’s dividend growth streak was halted last year when it was mired in a failed takeover attempt by a Chinese-backed company. As the acquisition dragged on, the company held its dividend steady.

Now that the takeover is behind them, Aecon has returned to dividend growth. In March, the company raised dividends by 10.5%, its first raise since the failed acquisition was first announced. With a low payout ratio (47.7%) and strong earnings growth, investors can expect strong dividend growth over the next couple of years.

TFI International (TFII.TO)

Another quarter has gone by and TFI International (TSX:TFII) has once again posted record quarterly earnings. Earnings of $1.18 per share beat by 12.40% and represented growth of 20% year over year. The recent downturn in the company’s stock price is unjustified.

This is a company that is posting double-digit growth and record results every quarter. It generates strong free cash flow and is trading at excellent values. It has a ridiculous cheap P/E to growth ratio (PEG) of 0.54 which is a clear sign of undervaluation.  Made popular by famed value invest Peter Lynch, a PEG ratio under 1 indicates that the company’s share price is not keeping up with expected growth rates.

TFI International has an eight-year dividend growth streak in which it has raised dividends by double-digits on average. This Canadian Dividend Aristocrat is expected to raise dividends next quarter. Given its strong performance thus far, expect another double-digit raise.

Mat Litalien is long Aecon Group and TFI International.