7 Canadian Dividend Growth Stocks Increasing Dividends

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Includes: CGEAF, CGECF, FTS, GMICF, TFIFF, TRI, WCN
by: Dividend Growth Investing & Retirement

This post originally appeared on Dividend Growth Investing & Retirement

Each month I update readers of all the dividend increases in the Canadian Dividend All-Star List (Canadian companies that have increased their dividend for 5 or more years in a row) along with a summary of these companies.

Tracking recent dividend increases can be a good way to generate new dividend growth stock ideas as dividend increases can be a sign from management that they feel good about the future.

"For companies with meaningful yields (above 2 or 3 percent), I take dividend increases as the loudest and clearest message that management can send."

Source: Josh Peters, The Ultimate Dividend Playbook, Chapter 7

This month there were 7 dividend increases with TFI International Inc. (OTCQX:TFIFF) and Waste Connections Inc. (NYSE:WCN) tied for the largest increase at 14.3%.

October 2018 Dividend Increases in the Canadian Dividend All-Star List

Table of Contents

  1. TFI International Inc. - 14.3% Dividend Increase
  2. Waste Connections Inc. - 14.3% Dividend Increase
  3. Cogeco Communications Inc. (OTCPK:CGEAF) - 10.5% Dividend Increase
  4. Cogeco Inc. (OTC:CGECF) - 10.3% Dividend Increase
  5. Genworth MI Canada Inc. (OTCPK:GMICF) - 8.5% Dividend Increase
  6. Fortis Inc. (NYSE:FTS) - 5.9% Dividend Increase
  7. Thomson Reuters (NYSE:TRI) - 1.4% Dividend Increase

What is the Canadian Dividend All-Star List (CDASL)?

The CDASL is an excel spreadsheet with a lot of stock information that is typically used as a starting point to identify and screen Canadian dividend growth stocks. The list has been updated monthly since early 2013 and it has come to be one of the most popular resources of my website.

OK, now on to the dividend increases…

1. TFI International Inc. - 14.3% Dividend Increase

TFI International Inc. is a North American leader in the transportation and logistics industry which includes the largest trucking fleet in Canada. They operate in four segments (Package and Courier, Less-Than-Truckload, Truckload, and Logistics and Last Mile) across the United States, Canada and Mexico.

Source: TFI International Second Quarter Ended June 30, 2018 Presentation

TFI International Dividends

TFI International Inc., which has a dividend streak of 7 years, recently increased their quarterly dividend 14.3% from C$0.2100 to C$0.2400. This dividend increase comes into effect with the dividend recorded on December 31, 2018. The dividend yield as of October 31, 2018, was 2.0%, and they have 5- and 10-year average annual dividend growth rates of 9.1% and -6.8%, respectively.

The 10-year dividend growth rate is negative because in May 2008 they converted from an income trust to a corporation and cut the dividend. At the time, they were paying a monthly dividend of $0.1325 ($1.59 annual equivalent) and then switched to a quarterly dividend of $0.10 ($0.40 annual equivalent).

The current dividend yield is quite low compared to 2010 and on which had high yields in the 3-5% range. Keep in mind the change from an income trust to a corporation in 2008 and the dividend cut which is why I'm focusing on 2010 and on when comparing to the current yield.

TFI International Dividend Policy

TFI International has a growth by acquisition strategy where they are trying to consolidate part of the highly fragmented transportation and logistics industry. Growth by acquisition strategies usually require a lower payout ratio, which is why their dividend policy is to pay out approximately 20-25% of annualized free cash flow as dividends.

TFI International Final Thoughts

This recent 14.3% high dividend increase sends a good signal, the company has impressive stock returns and appears to execute well on their acquisition strategy, but the low dividend yield is keeping me from completing a more in-depth review. I'd want to see a higher dividend yield in the +3.5% range before considering them further.

I'm also not sure if they have a sustainable competitive advantage as carriers compete primarily on price, and demand for freight transport is closely linked to the state of the overall economy.

I'm also hesitant to invest in companies that are growth-by-acquisition reliant.

2. Waste Connections Inc. - 14.3% Dividend Increase

Waste Connections, Inc. is the third largest solid waste company in North America. They provide waste collection, transfer, disposal and recycling services in mostly exclusive and secondary markets in the U.S. and Canada.

Waste Connections is a leading provider of non-hazardous oilfield waste treatment, recovery and disposal services in several of the most active natural resource producing areas in the United States, including the Permian, Bakken and Eagle Ford Basins. They also provide intermodal services for the movement of cargo and solid waste containers in the Pacific Northwest.

Source: 2017 Annual Report

Waste Connections Dividends

Waste Connections Inc., which has a dividend streak of 8 years, recently increased their quarterly dividend 14.3% from US$0.1400 to US$0.1600. This dividend increase comes into effect with the dividend recorded on November 13, 2018. The dividend yield as of October 31, 2018, was 0.8%, and they have a 5-year average annual dividend growth rate of 15.2%.

Value Line covers the company's NYSE listing and is estimating annual dividend growth of 11% over the next 3-5 years, so the high dividend growth looks like it should continue.

Source: August 24, 2018 Value Line Report for NYSE:WCN

Waste Connections Financial Strength

The company is a little lacking when it comes to financial strength because of a Baa2 rating from Moody's. S&P has a credit rating of BBB+ for Waste Connections and Value Line's financial strength rating is B++.

FYI - From Value Line, I want a B++ rating or higher and from the credit rating agencies a BBB+/Baa1/BBB (high) rating or higher.

Waste Connections Final Thoughts

The company has high dividend growth rates and Value Line is expecting the company to continue to fast dividend growth, but the dividend yield, at 0.8%, is just too low for me to get interested. Plus, Moody's Baa2 credit rating is below the Baa1 that I like to see before investing.

3. Cogeco Communications Inc. - 10.5% Dividend Increase

Cogeco Communications Inc. is the 8th largest cable operator in North America providing Internet, video and telephony services in Canada under the Cogeco Connexion name in Québec and Ontario, and in the United States under the Atlantic Broadband name in 11 states along the East Coast, from Maine to Florida.

Cogeco Communications Dividends

Cogeco Communications Inc., which has a dividend streak of 14 years, recently increased their quarterly dividend 10.5% from C$0.4750 to C$0.5250. This dividend increase comes into effect with the dividend recorded on November 14, 2018. The dividend yield as of October 31, 2018, was 3.3%, and they have 5- and 10-year average annual dividend growth rates of 11.8% and 20.2%, respectively.

Value Line is estimating 7.5% annual dividend growth over the next 3 to 5 years.

Source: September 14, 2018 Cogeco Communications Inc. Value Line Report

They have good dividend growth metrics and the current yield of 3.3% appears historically quite high.

Cogeco Communications Financial Strength

Value Line has a financial strength rating of B++ for Cogeco Communications and rating agencies have BBB- and BBB (low) ratings for the company.

Source: corpo.cogeco.com

I'm not seeing the BBB+/BBB (high) ratings that I want before investing so this isn't a stock I'd consider investing in.

Cogeco Communications Final Thoughts

The historic dividend growth has been great, and the future dividend growth looks decent, but the financial strength of this company is too low for me to consider investing. I want credit ratings of BBB+ or higher and they currently have BBB-. If the financial position of the company were to improve, then I'll reconsider it at that time.

4. Cogeco Inc. - 10.3% Dividend Increase

Cogeco Inc. controls Cogeco Communications Inc. which is the 8th largest cable operator in North America providing Internet, video and telephony services in Canada and the United States. They also own and operate 13 Quebec radio stations through their subsidiary, Cogeco Media.

Source: October 31, 2018 Investor Update Presentation - Results for Quarter-End August 31, 2018

Cogeco Inc. Dividends

Cogeco Inc., which has a dividend streak of 13 years, recently increased their quarterly dividend 10.3% from C$0.3900 to C$0.4300. This dividend increase comes into effect with the dividend recorded on November 14, 2018. The dividend yield as of October 31, 2018, was 2.8%, and they have 5- and 10-year average annual dividend growth rates of 14.1% and 17.5%, respectively.

The current dividend yield is historically high.

Cogeco Inc. Financial Strength

Cogeco Inc. isn't rated by the credit agencies, but its main subsidiary Cogeco Communications Inc. is. Value Line has a financial strength rating of B++ for Cogeco Communications and the rating agencies have given BBB- and BBB (low) ratings.

I'm not seeing the BBB+/BBB (high) ratings that I want before investing so this isn't a stock I'd consider.

Cogeco Inc. Final Thoughts

The historic dividend growth has been great, but the financial strength of Cogeco Inc.'s main subsidiary Cogeco Communications Inc. is too low for me to consider investing. I want credit ratings of BBB+ equivalent or higher and they currently have BBB- or equivalent. If the financial position of the company were to improve, then I'll reconsider it at that time.

5. Genworth MI Canada Inc. - 8.5% Dividend Increase

Genworth MI Canada Inc. (Genworth Canada) has been the leading Canadian private residential mortgage insurer since 1995. They are owned by Genworth Financial (NYSE:GNW) in the United States which holds 57.4% of the common shares of Genworth Canada.

Genworth Canada provides a single product: residential mortgage insurance, to mortgage originators and lenders. This default mortgage insurance enables low down payment borrowers to own a home.

Genworth Canada Dividends

Genworth MI Canada Inc., which has a dividend streak of 9 years, recently increased their quarterly dividend 8.5% from C$0.4700 to C$0.5100. This dividend increase comes into effect with the dividend recorded on November 12, 2018. The dividend yield as of October 31, 2018, was 4.7%, and they have a 5-year average annual dividend growth rate of 8.5%.

The current dividend yield is lower than most of the historic highs, but still high at 4.7%.

Because the company is relatively new (Created May 25, 2009) and started paying the dividend in 2009, it is hard to get a sense of the company's ability to go through a struggle. I use the global financial crisis as a barometer for companies to help get a sense of the dividend's ability to survive through a crisis and Genworth Canada initiated the dividend after the crisis.

I think I'd like to see a longer dividend streak from a company like this before investing.

Genworth Canada Financial Strength

The credit ratings look fine, but they are a single product company that is dependent on the residential real estate market.

Source: genworthmicanada.ca

Genworth Canada Final Thoughts

The dividend growth from this company has been good, but I already have enough financials in my portfolio so I haven't spent too much time looking into this company.

I'd be a little hesitant that they only have one product and it's reliant on the residential real estate market. My worry is that as a true long-term (decades) investment, how sustainable is the dividend? Can it survive a real estate market crash without cutting the dividend?

6. Fortis Inc. - 5.9% Dividend Increase

Fortis is the largest investor-owned utility in Canada by assets, one of the top 15 in North America, and has the 2nd longest dividend streak in Canada. Fortis has ten electric and gas operations with approximately $48 billion in assets serving over 3 million customers in Canada, the United States, and the Caribbean.

Source: Fortis Investor Briefcase

Fortis Dividends

Fortis Inc., which has a dividend streak of 44 years, recently increased their quarterly dividend 5.9% from C$0.4250 to C$0.4500. This dividend increase comes into effect with the dividend recorded on November 20, 2018. The dividend yield as of October 31, 2018, was 4.3%, and they have 5- and 10-year average annual dividend growth rates of 6.3% and 7.1%, respectively.

Source: Fortis Investor Day Presentation October 2018

As you can see, Fortis has an impressive dividend streak and management has stated that they plan to continue to increase the dividend by roughly 6% until 2023.

Value Line is estimating the same 6% dividend growth over the next 3-5 years.

Source: Fortis Value Line Report September 14, 2018

Fortis Financial Strength & Valuation

Fortis has a financial strength rating from Value Line of B++ and credit ratings of A- (negative outlook) from S&P, BBB (high) from DBRS, and Baa3 from Moody's.

For a utility company where earnings are a bit more reliable, I want a B+ rating or higher from Value Line and from the credit rating agencies a BBB/Baa2 rating or higher.

Despite the failing credit rating of Baa3 from Moody's, they still passed the S&P and DBRS credit ratings. The average rating of all three rating agencies would be around BBB to BBB+, so overall, I think Fortis is still worth considering.

Based on dividend yield, the stock looks moderately attractive as the current yield is right around its historic highs. You could've done a bit better in 2008 and 2009, but this can be said for most companies.

Morningstar rates them a narrow moat stock with a four-star valuation as they are currently trading under their fair value estimate of $46.

TIP - Check to see if your broker provides access to Morningstar. I use Questrade which has free access to Morningstar research.

Fortis Final Thoughts

Fortis looks like a good all-rounder; it has a high dividend yield at over 4%, decent dividend growth expectations at 6%/year, an OK financial strength, and appears to be trading at a reasonable price.

With interest rates on the rise, the utility sector has had some decent opportunities. I'm personally hoping for a bit more of a drop in price, as I have an open order to buy Fortis at C$39.

7. Thomson Reuters - 1.4% Dividend Increase

Thomson Reuters is the world's leading provider of news and information-based tools to professionals. The business has operated in more than 100 countries for more than 100 years. They have a global network of journalists and specialist editors keeping customers up to speed on global developments, with a particular focus on legal, regulatory and tax changes.

Source: THOMSON REUTERS SUMMER 2018 Presentation - Investor Booklet

Thomson Reuters Dividends

Thomson Reuters, which has a dividend streak of 24 years, recently increased their quarterly dividend 1.4% from US$0.3450 to US$0.3500. This dividend increase comes into effect with the dividend recorded on November 15, 2018. The dividend yield as of October 31, 2018, was 3.1%, and they have 5- and 10-year average annual dividend growth rates of 1.5% and 3.5%, respectively.

Source: THOMSON REUTERS SUMMER 2018 Presentation - Investor Booklet

Thomson Reuters has low dividend growth rates, and with a high payout ratio (+100%), I'm not surprised to see Value Line forecasting low dividend growth of 2.5% per year on average over the next 3-5 years.

Source: Thomson Reuters Value Line Report Aug 24, 2018

Thomson Reuters Financial Strength & Valuation

Value Line gives Thomson Reuters an "B++" rating for financial strength, and it has OK, but not quite good enough for me, credit ratings from S&P - BBB, DBRS - BBB (high), and Moody's - Baa2 (negative outlook).

FYI - From Value Line, I want a B++ rating or higher and from the credit rating agencies a BBB+/Baa1/BBB (high) rating or higher.

Based on dividend yield, the stock looks a little overvalued and a better entry point has been more around the 4% yield.

Morningstar rates them a narrow moat stock with a three-star valuation as they are currently trading around their fair value estimate of $60.

Thomson Reuters Final Thoughts

Yes, Thomson Reuters has a long dividend streak at 24 years, but it had an anemic 1.4% dividend increase and the low long-term dividend growth rates aren't much better at under 4% (1.5% 5-year dividend growth rate and 3.5% 10-year). Add on the OK, but not quite good enough for me credit ratings and I'm left uninspired.

Summary

Monitoring dividend increases is a good idea because it can be a sign from management that they feel good about the future prospects of the company.

There were 7 October 2018 dividend increases in the Canadian Dividend All-Star List (An excel spreadsheet with a lot of stock information on all Canadian companies that have increased their dividend for 5 or more calendar years in a row.):

  1. TFI International Inc. - 14.3% Dividend Increase
  2. Waste Connections Inc. - 14.3% Dividend Increase
  3. Cogeco Communications Inc. - 10.5% Dividend Increase
  4. Cogeco Inc. - 10.3% Dividend Increase
  5. Genworth MI Canada Inc. - 8.5% Dividend Increase
  6. Fortis Inc. - 5.9% Dividend Increase
  7. Thomson Reuters - 1.4% Dividend Increase

Of these 7 companies, the one that interests me the most is Fortis Inc. as it has the 2nd longest dividend streak in Canada, a high yield (+4%), and decent dividend growth prospects (6% annual increases expected over the next few years). I'm hoping that it comes down in price a bit so that my $39 CAD limit buy order is triggered.

Disclosure: You can see my portfolio here.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.