Get Your Dividend Growth 'Off The Grid' - In Canada

by: Five Plus Investor

I am an avid user of my DVR recorder. I like the control of recording my show preferences, and the convenience of being able to zip through all those annoying commercials. I'm a tough sell; I'm just not big on advertising.

There is one commercial, however, that caught my eye and made me smile in spite of myself:

Like Christopher Columbus on a speedboat, there's something exhilarating about going "off the grid" to discover something completely new. As a stock investor, no matter how conservative you are, we all love discovering new territories in which to invest.

For those of us who love dividend growth investing, the vehicles we normally use for our dividend growth are not considered all that sexy. In fact, most are considered as glamorous as the Nina, Pinta and Santa Maria. I am talking about U.S. dividend growth stocks, from U.S. companies, traded on the U.S. exchanges.

But what if you lean a little more to Christopher Columbus on a speedboat? Or maybe, you just want a little excitement to go with your Nina, Pinta and Santa Maria?

I have good news for you: you can go "off the grid," and get your dividend growth too!

Canadian Corporations for Dividend (or Distribution) Growth

I will tackle going "off the grid" in several installments, and this first one is sailing a familiar territory: Canadian Corporations.

I have, for a while, maintained a master list of sorts for Canadian investments. According to various investment metrics I gave each issue an "FPI (Five Plus Investor) Rating." Like any rating system it was subject to personal opinion. While most of you appreciated the additional assistance, others protested. I even received a rather pointed email from a company officer disputing that his company deserved a "4" rating (which is the next-to-bottom rating).

For future installments I will be veering away from a subjective rating and focusing on what many income investors prize the most: dividend growth.

Or, in the case of Canadian corporations, "distribution" growth, the difference of which can be explained here. Because it is more correct to say "distributions" when referring to Canadian corporations, I will, from this point, refer to any payments as such.

Let's face it: many dividend growth investors are scared-off from international issues. Stocks from Canada and other countries, for the most part, don't make the more famous of our dividend growth stock lists. As well, the distribution may be growing, but not consistent year-over-year, and analyst information may be tough to locate or non-existent.

Even with these barriers, I was please to discover that upon further examination, Canadian stocks offered more opportunities for classic dividend / distribution growth than I previously thought.

Differences from the CCC List

When one considers master lists of dividend growth stocks, one cannot escape David Fish's Champions, Contenders and Challengers (CCC) List found at Many of us are familiar with this list, so I will say right off the bat: my CanCorp Dividend Growth master list is not meant to replicate David Fish's CCC List. David Fish's list is Hercules; mine is Midas. I simply don't have the bandwidth to dedicate to such a monumental task. It therefore may be beneficial to discuss some key differences between his list and mine.

The main similarity to the CCC List is that a company makes the list when it exhibits five years of distribution growth. Other than that, there are some major differences:

  • Five years of distribution growth is expressed as cumulative growth as opposed to average growth over the last five years. In other words, how much has the distribution grown from this point this year as measured from the same point 5 years ago.
  • There are no other metrics given for distribution growth; it is not broken down into 1, 3 and 10 year growth metrics.
  • David Fish's list offers an easy way to measure inflation protection in the 1 year dividend growth and 5/10 year A/D metrics. The CanCorp Dividend Growth does not have these benchmarks. Instead, whether or not an issue beat the rate of inflation is measured by 5 years of cumulative inflation, and is color-coded on the spreadsheet - green beats 5 years cumulative inflation, red does not. According to, the cumulative rate of inflation from August 2007 - August 2012 (the most recent data I could mine) was 10.80% (See the inflation calculator at
  • Dividend growth may - or may not - be year over year. Many CanCorps froze or reduced their dividends for a brief period during the financial crisis in 2008 and with new tax laws that took effect in 2011. By the same token, many resumed or increased dividends not long after, resulting in a cumulative growth effect over 5 years.
  • The list does not include any issues that yield less than 3%.
  • Most Canadian issues are listed for trading in America on the OTC or pink sheets, and are not listed for trading on the major exchanges. (Some brokerage houses will allow you to buy these directly on the Canadian exchange.)
  • With U.S. stocks, there is no foreign withholding tax. Canada imposes a withholding tax of 15%, but laws effective January 2011 state there is no 15% withholding tax for U.S. investors when holding corporations in tax exempt accounts. The 15% withholding still applies for trusts, and for all issues held in taxable accounts. As such, the CanCorp Dividend Growth indicates whether or not the issue is a trust. Trusts will be less advantageous held in a tax-exempt account because the 15% withholding tax still applies.

Surprise #1: Some Canadian Corporations DO grow distributions year-over-year!

This should be a welcome surprise to any dividend growth investor: some Canadian corporations indeed maintain a commitment to grow their distributions year-over-year (YOY), at least as measured over the last five years. There were also a handful that not only grew distributions YOY, but handily beat the cumulative rate of inflation for the past five years. These corporations include:

Another surprise, at least for me - I had never heard of most of these corporations. They appear to be under the radar of most analysts and publications. However, some of them have exhibited remarkable company and distribution growth, especially AirBoss of America and Constellation Software.

Six other corporations are listed that also grew distributions YOY, including more well-known BCE, Inc. (NYSE:BCE) and TransCanada Corporation (NYSE:TRP).

Surprise #2: Some of the more famous Canadian corporations don't make the list…

Here is a disappointing surprise: many of the most widely analyzed and promoted Canadian issues have either stodgy distribution growth, or none at all. Many of these CanCorps are still stellar investments and provide stable, reliable distributions. The problem is: the distributions aren't growing. They act not in the role of dividend growth, but more in the role of fixed income.

Inevitably there will be argumentation as to what is best, and these arguments don't even touch on what complicates the mix, and that is currency fluctuation. My motto is K.I.S.S. (Keep It Simple, Stupid), so keeping it simple, I will only say this:

If the distribution is flat over the last 5 years, in simplest terms it has not kept up with the U.S. cumulative inflation rate of 10.80%.

Here are some of the "surprises" that don't make the CanCorp Dividend Growth list:

Other surprises that make the CanCorp Dividend Growth list, but whose distribution growth ranks them towards the bottom: Artis Real Estate Investment Trust (OTCPK:ARESF), Bonterra Energy Corporation (OTCPK:BNEFF), Northern Properties Real Estate Investment Trust (OTC:NPRUF), and Pembina Pipeline Corporation (NYSE:PBA).

Dividend Growth Investors CAN Explore Other Worlds…

The journey which takes us to higher yearly dividend growth will probably always be tied to the United States. But like Christopher Columbus on a speedboat, we may get there a little faster - and with a little more flair - by mixing in a little bit of the rest of the world into our portfolios. Canada remains our foremost trading partner, and a country with one of the world's best banking systems and strongest currencies. When exploring other worlds of dividend growth, this country is the best place to start.

Disclosure: I am long PBA, BCE, OTCPK:CUPUF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.