Top Canadian Dividend Growth Stocks to Buy in June 2024

WRITTEN BY Dan Kent | UPDATED ON: June 3, 2020

Best Canadian Dividend Growth Stocks 2020

Disclaimer: The writer of this article or employees of Stocktrades Ltd may have positions in securities listed in this article. Stocktrades Ltd may also be compensated via affiliate links in this post. Stocktrades Ltd will run advertisements on our posts. These advertisements do not represent an endorsement by us.

**This article is a transcription of the video above. Click here to watch our top Canadian dividend growth stock video on Youtube instead**

Investors with a long term view on there portfolios will more than likely want one thing.

They’ll want to learn how to buy stocks that generate strong and passive income stream in retirement.

So, how do we do it?

The number one way to do it is dividend stocks. Primarily dividend growth stocks.

My names Dan, co-owner of and in this video and transcription I’m going to be covering some of Canada’s best dividend growth stocks for 2020. These might not necessarily be the highest yielding dividend stocks, but they’re going to be stocks that provide you with strong dividend growth.

And more importantly, compounding dividend returns.

If we want to build an investment portfolio that in retirement we don’t have to touch the principle, or in other words simply live off the dividends, dividend growth stocks are absolutely critical.

I have a large chunk of my portfolio allocated towards dividend and dividend growth stocks. And as investors transition through different career stages, ages etc it is very likely they will transition to holding more and more of these stocks until they are eventually the only stocks in their portfolio.

Getting straight to the point, the criteria for making this list is as follows:

  • Company must have a double digit 5 year annual dividend growth rate
  • Must be a Canadian Dividend Aristocrat
  • Payout ratio in terms of earnings of under 60%
  • Payout ratio in terms of free cash flows of under 50%

So I spent a total of 45 seconds finding these 3 stocks this morning. And the way I can do it so efficiently is simply with our dividend screener over at Stocktrades Premium.

We track over 200 Canadian dividend stocks, we have 1 and 5 year dividend growth rates, dividend growth streaks, payout ratios in terms of earnings, FCF’s, OCF’s. Our screeners have saved people hours of research.

If you’re looking to create a pin pointed shortlist of income stocks, dividend growth stocks or even pure-play growth stocks, our screeners will save you a ton of time.

If you want to check us out, click here.

Now, on to our first stock.

Equitable Bank (TSX:EQB)

Equitable Bank (TSX:EQB) is one of Canada’s top alternative lenders. They have a yield of around 2.16% at the time of filming the video and it has a 5 year dividend growth rate of 13.66%.

With a dividend growth rate like this, they are essentially doubling the dividend in just over 7 years. Now, in terms of payout ratios, Equitable Bank has a extremely low payout ratio. It’s around 12.3% at the time of filming.

In terms of cash flows, we’re actually not going to speak on that. Looking at cash flows i nterms of payout ratios for financial institutions will probably end up confusing a lot of new investors. They often operate with negative operating cash flows, and this is because loaning consumers money is a large part of their business operations.

Equitable bank was trading in the $110 range prior to the crash and right now it sits at around $67. At its lows, the company dipped below the $45 range, which just shows you how much this stock market crash was based on pure fear and selloffs.

Now the outlook for the Canadian economy does not look good, so why do we like Equitable Bank?

Well, for one, they are all digital. And this is something we feel is really going to catch on moving forward. People spending more time at home than in the office, and we expect this transition to effect the banks as well.

So Equitable Bank is a schedule 1 bank, and they have been told they are able to continue to pay dividends, but dividend increases must be put on hold. Most all of the major financial institutions were told this, and it is unfortunate, because before all of this started happening, Equitable Bank had one of the fastest growing dividends in the country.

As most companies tend to raise dividends every year, keeping their yearly dividend growth streak alive, Equitable Bank had raised dividends for six straight quarters.

This is more than any other financial institution in the country.

Management has also stated that they would like to increase the dividend by 20-25% on an annual basis. This increase on the high end would mean the company expects to double the dividend every four years.

The company started paying dividends when they initially went public in 2004, and they paid an annual dividend of $0.24 a share. The share price back then of $23, this is just over a 1% yield.

If you were to have purchased the stock back then, your yield on cost right now would be around 6.43%. This yield on cost shows that not only is Equitable Bank increasing its dividend at a rapid pace, but its share price is also increasing.

As of right now, Equitable Bank is cheap

On a forward earnings basis it’s trading at only 5.64 times earnings.

Now, the second quarter is when we will see the full impacts of COVID-19 on the Canadian financial institutions. So there is a chance that analysts will be downgrading estimates.

But overall, the company is an excellent dividend growth option, and with such low payout ratios, even in an economic downturn although possible, the company is very unlikely to cut its dividend.

It would have been very interesting to see if this COVID-19 pandemic hadn’t happened, how many consecutive quarters Equitable Bank would have been able to raise the dividend.

CCL Industries (TSX:CCL.B)

This is a stock we actually think may be able to increase the dividend during the COVID-19 pandemic, and that is CCL Industries (TSX:CCL.B).

There are a manufacturing company that makes packaging and labels for a wide variety of industries. The company is one that a lot of Canadians have never heard of, and this is primarily because their product line is straightforward and simple.

They are sizable, there is no question about that. The company states they have over 21,000 employees and have over 180 facilities in 40 countries.

The company’s stock price did take a significant hit during the market crash, and it was relatively unwarranted. This company produces packaging and materials for some industries that are in very high demand right now. Consumer packaging, healthcare, electronic devices, automotive markets etc.

Now the company did just post first quarter results, and on a year over year basis, earnings are relatively flat.

Which would typical be something you wouldn’t want to see. But considering we are in the middle of a pandemic right now, a lot of investors are actually happy with flat earnings.

Revenue of nearly $1.3 billion are around $40 million shy of last years numbers, but diluted EPS is actually up a penny to $0.70.

In terms of balance sheets, the company has a very healthy one.

With around $2.15 billion in current assets and $1.25 billion in current liabilities, the company currently has just shy of $1 billion in working capital.

And if you’re unsure of what working capital is, it is simply the company’s current assets minus it’s current liabilities. “Current” in terms of assets means the company has the ability to quickly turn it into cash within the next 12 months. Think actual cash, or inventory that is to be sold. In terms of liabilities, these are liabilities that will be due in the next 12 months. Think accounts payable for materials, or debt that has come due.

Now one thing we like is the fact that CCL is putting this working capital to use.

The company has made 6 acquisitions in 2020, and most all of the companies are based internationally in the UK or the United States.

Considering its last acquisition was in March, before the pandemic really hit hard, we would expect the acquisitions to slow down. But it is still a strong sign when the company is putting cash to good use.

Dividend numbers

In terms of dividend numbers, CCL is approaching nearly 2 decades of straight dividend growth. The company has raised dividends for 18 straight years and have a 5 year dividend growth rate of 25.32%.

This essentially means the company is doubling its dividend every 4 years, and its most recent increase was actually over the 30% mark.

In terms of earnings, the company is paying out around 26% and in terms of free cash flows, just under 28%.

The dividend is healthy, and it will be very interesting to see if CCL can continue to raise it in the future.

The yield isn’t that high, it’s only 1.58%, but the real thing to consider is its huge dividend growth.

The company started paying a dividend back in the mid 90’s when it was trading around $2.10 a year, paying an $0.056 annual dividend.

Fast forward to today and the company has a $0.72 annual dividend, which equates to a massive 34% yield on cost.

Overall, unlike our first stock Equitable Bank, which is going to be forced to maintain the dividend, we really feel that CCL Industries has a good chance of actually being able to increase its dividend moving forward because of the industry it operates in.

Enghouse Limited (TSX:ENGH)

Our third and final stock is Enghouse Limited (TSX:ENGH). Enghouse is one of the best technology stocks to own today in terms of dividend growth, especially if you’re looking to earn a passive income stream through compounding dividends.

Unlike Equitable bank and CCL which are still trading at discounts relative to their 2020 highs, Enghouse has been the beneficiary in a surge of popularity in tech stocks during this pandemic.

The company is trading well above 2020 highs and valuations are pretty high right now. On a forward price to earnings basis, the company is trading at 36.2 times earnings, and around 8.1 times book value.

But, if you are looking to get exposure to the tech sector, which we feel should almost be included in every single portfolio now, and you’re also looking for dividend growth, there is no better than Enghouse.

The company has a 13 year dividend growth streak and a 5 year dividend growth rate of around 17.19%. This means that in just over 5 years, the company will have doubled its dividend if they keep this same growth rate moving forward.

In terms of free cash flows, the company only pays out 28.75%. And in terms of earnings, just shy of 40%.

Now, this 5 year dividend growth rate is fairly impressive. But even more impressive is that over the course of Enghouse’s 13 year growth streak, it managed to grow the dividend by 10% or more on an annual basis in every single year.

Not only are you getting dividend growth with this tech stock, you’re also getting capital appreciation. Enghouse’s stock price has risen by 33% annually over the last 5 years, and pandemic or not this stock seems to continue to deliver, as it is already up around 22% YTD, which is significantly outperforming the TSX Index.

Enghouse provides software solutions to large companies, and also has a very diverse base of clients. They take care of networking software, customer service solutions and logistics software for companies in the utility, banking and telecom sector. They have a very wide product and customer base.

And even though Enghouse does look expensive right now, it’s actually trading significantly lower than its peers. Stocks like Kinaxis and Shopify have extremely rich valuations right now due to strong growth. But the one thing Enghouse has that they don’t, is a dividend that is growing at a rapid pace to go along with some excellent growth in stock price.

Year over year revenue are up 28.6%, and net income has saw a 7.8% increase. The company is seeing a significant increase in subscriptions in essentially all of its platforms besides its hardware segment, which makes up very little revenue.

It’s important to note the company essentially has zero debt, and this is going to give them a ton of flexibility moving forward in terms of acquisitions and increasing the dividend.

In the past, technology stocks have often been thought of as speculative and high risk in nature. But we really feel moving forward that techology stocks are actually going to become somewhat of a defensive option in every Canadian investor portfolio.

One last thing I’d like to mention is if you do want more information on Enghouse, sign up for our free membership at Stocktrades Premium. We develop custom research reports for members and we actually made one on Enghouse not too long ago.

It takes a couple seconds to register, and it has a lot more information on the company than in this article.

Overall, that’s it for the video and we really hope you enjoyed it! Like and share the video (or this article) and subscribe to the channel! We’ll see you next time.