Canadian Dividend All-Stars – Week of Feb 22

This week is an important one for Canadian dividend stocks because Canada’s banks begin to report earnings. Banks are an important bellwether of Canada’s economy and they are among the most watched earnings on the TSX Index. Many newcomers first learning how to buy stocks in Canada shore their portfolios up with bank stocks first.

At this time of the year, there are usually several banks that would be on tap to raise dividends. Those include Royal Bank of Canada (TSX:RY), Canadian Imperial Bank of Commerce (TSX:CM), Toronto Dominion (TSX:TD), and Canadian Western Bank (TSX:CWB).

However, as we’ve explained several times they fall under the purview of the OFSI and the governing entity has put a cap on dividend raises for the time being. That means, the next few weeks won’t have the same fanfare as they usually do for banks.

While that is disappointing, there are still several of the All-Stars that are expected to come through for investors. Note: all figures are in Canadian dollars unless otherwise noted.

Recent dividend updates

This past week was unfolded as expected. TC Energy (TSX:TRP), goeasy (TSX:GSY) and Magna (TSX:MG) all came through with their annual dividend raises. 

Company	EST DGR	EST Increase	Actual DGR	Actual Increase	New Div
GSY	25%+	$0.12+	46.7%	$0.21	$0.66
MG	10.00%	$0.04	8.00%	$0.03	$0.43
TRP	8.64%	$0.07	7.4%	$0.06	$0.87

Let’s start with goeasy’s blow out quarter. The company beat on both the top and bottom lines and posted a record quarter. As a result, it was able to exceed expectations with a 47% raise to the annual dividend. While the company’s low yield might turn income investors away, the high dividend growth rate more than makes up for it.

Turning our attention to TC Energy, the company’s 7.4% raise was inline with expectations. The company had a targeted dividend growth rate between 8-10% through 2021 and while it comes in just below that target, it is certainly within expectations. 

Moving forward, the company is expected to raise dividends inline with cash flow growth which is expected to be in the mid, single-digit range. 

For its part, Magna’s 8% raise was slighter lower than its double-digit average but is really nothing to be disappointed about. The raise will extend the dividend growth streak to 12 years. 

Magna remains one of the most reliable dividend growth stocks that operates in a cyclical industry.

Upcoming dividend raises, cuts or suspensions

Stantec (TSX:STN)

Current Streak: 9 years

Current Yield: 1.29%

Earnings: Wednesday, February 24

What can investors expect: Stantec (TSX:STN), a dual-listed engineering and construction firm has a modest dividend yield and is looking to extend the growth streak to a decade. The company has a reliable pattern of raising with fourth-quarter and year-end results.

The company’s low yield won’t get too many investors excited, and a history of single-digit growth isn’t enough to make up the shortfall for most income investors.

The company’s DGR has also been trending downwards and last year, the company raised dividends by 6.90%. The company is well positioned to benefit from a rise in infrastructure spending and government stimulus. Given this, I am expecting another mid-to-high, single-digit raise.

EST DGR	EST Increase	New Div
6-10%	$0.01-0.015	$0.165-0.17

CCL Industries (TSX:CCL.B)

Current Streak: 19 years

Current Yield: 1.09%

Earnings: Thursday, February 25

What can investors expect: CCL Industries (TSX:CCL.B) is looking to extend its industry-leading dividend growth streak to two decades. The company has a reliable pattern of raising with fourth quarter and year-end results.

CCL had one of the highest dividend-growth rates on the All-Star list, but then last year’s 6% raise was much lower than its historical averages. Considering the company raised dividends by 30% in 2019, the lower raise was quite disappointing. It is also what makes predicting the raise incredibily difficult.

This is especially true, when one considers the low payout ratios. The dividend accounts for only 25% of earnings and 21% of FCF and 15% of OCF. This isn’t a case whereby the safety of the dividend is questionable. In fact, one would assume it has plenty of room to raise.

With this in mind, I’m estimating a return to double-digit growth in 2021.

EST DGR	EST Increase	New Div
11%	$0.02	$0.20

Transcontinental (TSX:TCL.A)

Last year, the company raised dividends by only half a penny. It will likely be the same in 2021, or a penny at the most.

Current Streak: 19 years

Current Yield: 4.25%

Earnings: Thursday, February 25

What can investors expect: Transcontinental (TSX:TCL.A) will be looking to extend the dividend streak to 20 years when the company reports earnings on Thursday. It has a reliable history of raising dividends in late February or early March.

Transcontinental’s dividend growth has been on a slow decline. Over the past five years, it has averaged around 6%, but last year’s 2.30% raise was yet another low for the company.

The slowing growth is not surprising, as the company operates in a challenging industry. Likewise, even though it has a respectable payout ratio against forward earnings (40%), earnings estimates are for low, single-digits growth over the next couple of years.

EST DGR	EST Increase	New Div
2-5%	$0.005-0.01	$0.23-0.235

Innergex Renewables (TSX:INE)

Current Streak: 7 years

Current Yield: 2.69%

Earnings: Thursday, February 25

What can investors expect: Renewables have been white-hot and Innergex (TSX:INE) has been riding the wave which has lifted stocks in the industry to new heights. Since the company’s young streak began, it has consistently announced a dividend raise in late February.

It wasn’t that long ago when Innergex (TSX:INE) was yielding above 5%. However, thanks to a shift towards renewables, buying pressure has led to a 100% gain in share price over the few years. As a result, the company’s yield has been effectively halved.

Since the company’s streak began the company has raised the dividend by exactly half a cent. That means, it has had a declining growth rate. The company’s payout ratio is quite high and as it is investing heavily in the projects, I would not expect much more than another raise inline with historical averages.

EST DGR	EST Increase	New Div
2.78%	$0.005	$0.185

Maple Leaf Foods (TSX:MFI)

Current Streak: 6 years

Current Yield: 2.64%

Earnings: Thursday, February 26

What can investors expect: Maple Leaf Foods (TSX:MFI) is a leading consumer packaged-meats company and it is looking to extend its streak to seven years. Over the past five years, it has made the annual dividend raise announcement along with fourth-quarter and year-end results.

As a relative newcomer to the list, Maple Leaf Foods has a healthy, double-digit dividend growth rate. Unfortunately, it is a rate that has been on a steady decline.

Last year’s 10.3% raise was the lowest, and given its struggles this past year it will be an interesting one to watch. Maple Leaf is still under water for the year (-9%) and the economic lockdowns have impacted its commercial segments. Although the consumer and grocery segment has been robust, it generates a significant amount of revenue in the commercial space.

The company’s payout ratio has ballooned to 75%, but drops to 53% on a forward basis. All things considered, I would not expect a raise any higher than that $0.015 which is inline with the last two raises. In fact, it may come in below this rate or the dividend could be kept steady.

EST DGR	EST Increase	New Div
6-10%	$0.01-0.015	$0.17-0.175

Mat Litalien is long GSY.