Although they can often get more yield by taking on a little more risk or choosing a younger company, most dividend investors like to stick with the tried and true–companies with considerable dividend streaks.
The logic is pretty simple. If a company has paid dividends for a long time, it’s likely to continue doing so in the future. It has made a commitment, in other words. A dividend streak also shows investors the company is consistently profitable year after year.
Some investors have even taken this a step further, insisting on only investing in companies that have raised dividends for a number of consecutive years. Stocks that have a 25-year streak of raising their payouts belong to a very exclusive club called the Dividend Aristocrats.
Canada, unfortunately, doesn’t have many Dividend Aristocrats. However, we do have a number of great stocks that have just missed membership in this exclusive club on technicalities. These companies are great places for dividend investors to start their search for truly sustainable yield.
Here are three Canadian companies with more than 200 combined years of paying investors consistently and on time.
Royal Bank of Canada
Royal Bank of Canada (TSX:RY)(NYSE:RY) was founded in Halifax, Nova Scotia, in 1864. By 1870 the bank had grown enough to pay investors their first dividend.
The rest, as they say, is history. Through both world wars, the Great Depression, various oil shocks, and bull and bear markets, Royal Bank not only survived–it thrived. It grew to dominate Canada’s banking industry, eventually expanding into the United States both in the southeast and, more recently, in California with its acquisition of City National.
Royal Bank is number one or number two in every important retail banking category in Canada, dominating everything from number of branches to mortgages to credit cards. Its capital banking business is top notch with operations around the world. And growth in the United States continues to be solid, even if the company did perhaps overpay for its latest foray into that market.
And, perhaps most importantly, Royal Bank’s dividend still looks rock solid. Shares pay $0.81 per quarter–good enough for a yield of 4.03%. With a payout ratio of approximately 50% and solid earnings growth expected, look for the company to not only maintain its payout, but to grow it in the future.
Inter Pipeline
Over the last two years, most of Canada’s energy companies have seen their dividends either get slashed or eliminated altogether. Only a select few have been spared this carnage.
Inter Pipeline Ltd. (TSX:IPL) has bucked the trend. In fact, the pipeline operator with operations mostly in Alberta actually increased dividends in both 2014 and 2015, hiking the monthly payout from $0.1075 to $0.13 per share. Inter Pipeline has paid dividends every year since 1997 and shares currently yield 5.66%.
It looks likely dividend growth will continue as well. When Inter expanded its three main oil sands pipelines, it built much more capacity than needed. This will allow it to easily add to the bottom line when new production comes online from the area, which will happen sooner or later.
Canadian Utilities
Canadian Utilities Limited. (TSX:CU), a subsidiary of Atco Ltd., owns more than 87,000 km of power lines, 15 power plants with a generation capacity of 3,587 MW, and more than 63,000 km of gas pipelines. It has operations across Canada, the United States, Europe, and Mexico, among other countries. Total assets are close to $20 billion.
The company has been making an effort to move into more regulated regions. In 2011 just 52% of earnings came from regulated areas. By 2015 the share of earnings from regulated jurisdictions grew to 88%. This move will make earnings more consistent in the future, helping keep dividends secure as well.
Canadian Utilities hasn’t just maintained its dividend for the 44 years it’s been a publicly traded company. It has hiked its payout every year since 1972, with dividends growing from just 6.5 cents per share in 1972 to $1.30 in 2016. That’s remarkable growth for such a long period of time.
