Two Top Canadian Dividend Growth Stocks to Buy Today

WRITTEN BY Dan Kent | UPDATED ON: November 10, 2021

Canadian dividend stocks

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Many new investors might be unaware of a simple little trick that can not only help you outperform the markets over the long term, but also help you fight the inevitable battle we are going to have with inflation.

What trick is that?

Buying dividend growth stocks. Canadian dividend stocks that regularly hike the dividend are some of the best performers in the country. And, if those dividend increases are outpacing inflation, it's even better. The buying power of your passive income stream is increasing, not decreasing.

In this article I'm going to go over two popular Canadian dividend stocks, ones that are consistently raising the dividend and beating the market in terms of capital appreciation. Lets get started.

CCL Industries (TSX:CCL.B)

There are few companies in Canada that have been able to grow the dividend for multiple consecutive decades. CCL Industries (TSE:CCL.B) isn't there yet, but with a dividend growth streak of 19 years, it could achieve this in the next year.

Why has the company been able to generate such long standing dividend increases?

What exactly does CCL Industries do?

They operate in somewhat of a defensive industry, despite being labelled a consumer cyclical stock.

The company produces packaging and packaging related products. Products like labels for consumer packaging, healthcare, and automotive industries. Its Avery segment sells things like software, labels, dividers, badges, and card products. And then its Checkpoint segment deals with things like inventory management and labelling solutions.

Prior to the COVID-19 pandemic, this is a company that grew the top line for a decade straight, and has grown net income in 12 of 13 years. So as mentioned, while this is a consumer cyclical stock, it is clearly not impacted much by the cyclical nature of the packaging industry.

This consistency from the company and the management team is the reason the dividend has grown so much. Although we don't use yield on cost to make investment decisions, it can be a strong indicator of how fast a company is growing its dividend. If you would have purchased CCL during its mid-90's IPO at $2 a share, you'd now have a whopping yield on cost of 42%.

CCL Industries Dividend

This is because the company has grown the dividend from $0.056 in 1995 to $0.84 today. Talk about an inflation killer!

Dividend growth over the last 5 years has been just shy of 20% on an annualized basis, essentially meaning this company is set to double its dividend every half decade if it can keep up the current pace. Now, its most recent increase was well off this mark at 5.88%, but I'm willing to give the company a break during the midst of the pandemic.

With a payout ratio of only 22.85% of free cash flow, I think we're going to see CCL Industries return back to double digit dividend growth in short order. With a yield of 1.24%, it's not the most attractive from a yield standpoint, but that compounding dividend growth is sure hard to pass up.

If high yield is what you are after (we always caution towards getting tunnel vision for high yields as a high yield itself doesn't reflect the whole picture), check out two of the top Canadian high-yielding dividend options today.

The company's products will continue to be of use for the foreseeable future, and while this isn't an explosive growth stock, it's one that has provided outstanding returns for investors buying stocks over the last couple decades. 

Cogeco Communications (TSX:CCA)

The great thing about smaller telecom companies here in Canada is that they are often able to grow the dividend at a much faster clip than a major telecom. A company like Cogeco Communications (TSE:CCA) fits this bill exactly, and the company has had some strong share growth over the last decade as well.

Cogeco provides residential and business customers with internet, video, and phone services, primarily with broadband fibre networks. With a market cap just shy of $5B, this company doesn't hold a candle to many major Canadian telecoms like BCE or Telus in terms of sheer size. However, this is still a strong telecom company in Canada today.

The company has grown the top line in 9 of the 11 previous years, and net income has more than doubled since 2013. This type of consistency has allowed Cogeco to have one of the fastest growing dividends in the sector.

TSE:CCA Cogeco Dividend Growth

The company has raised dividends for 17 straight years, a tie with Telus for the longest streak in the country among telecoms. Over the past 5 years, the company has grown the dividend at a rate of 11% annually. This far surpasses the growth rates of 7.12% and 5.07% in Telus and BCE respectively, and is exceptionally better than the next to no dividend growth coming from Rogers.

Where does Cogeco Communications valuation stand?

From a valuation standpoint, Cogeco is extremely cheap. This isn't uncommon among the smaller telecoms here in Canada. Considering the Big 3 make up 92% of the market share, many smaller players go unnoticed. But at just 11.32 times forward earnings and 1.7 times forward sales, you're getting an attractive price on this mid 2% yielding income play.

The dividend is also well covered, with a payout ratio of only 30%. This gets cheaper when we look at the free cash flow payout ratio, as it shrinks to only 23.9% of trailing cash flows. This means that not only is Cogeco's dividend safe, but it's likely to continue its double digit dividend growth.