Dividend stocks with high income growth can do wonders for your wealth creation. Imagine if you can get a growth rate of 15% on your dividends. It means you could double the income in about 4.8 years, approximated using the Rule of 72.
The tricky part is that stocks simply cannot stay on the income-growth highway forever. For example, the underlying businesses of stocks may be impacted by the ups and downs of the economic cycle. As well, businesses just can’t grow at a high rate for an extended period of time. It’s generally easier to grow a $100,000 business to $200,000 versus from $1 billion to $2 billion, for instance.
Here are a couple of dividend stocks that have the potential to increase their dividends at a rate of about 15%.
Earn high dividends over the long term
goeasy (TSX:GSY) appears to be experiencing slower earnings growth in a higher inflationary and higher interest rate environment. Last year, its adjusted earnings per share increased by 11% to $11.55 versus its growth rate of 29.5% over the last decade. Accordingly, the Canadian stock just raised its dividend by 5.5% this month. Similarly, this growth rate is much lower than its 10-year dividend-growth rate of over 26%.
As a leading non-prime consumer lender in Canada, goeasy has improved the resilience of its business over the years. Its loan portfolio is more diversified — its loans now originate from unsecured lending, home equity loans, point-of-sale lending, and automotive financing. Additionally, it has made tremendous efforts to improve the credit quality of its customers, helping them improve their credit scores and reduce their interest rates.
There will always be a percentage of the Canadian population that needs goeasy’s products. “We now expect to scale the consumer loan portfolio to nearly $5 billion in 2025, as we continue serving the 8.5 million non-prime Canadians that rely on access to credit for everyday financial needs,” Jason Mullins, goeasy’s president and chief executive officer stated in a recent press release. For the record, the consumer loan portfolio was almost $2.8 billion at the end of 2022.
It is a good time to buy goeasy shares at a reasonable price and a yield of 2.9% for the potential of high dividend income growth for the long term.
Another dividend stock with high income growth potential
Brookfield Asset Management (TSX:BAM) is another dividend stock with high income growth potential. It was just spun out from Brookfield Corporation in December, which is why some cautious investors would wait for the company to have a track record as an independently listed public entity before investing.
Investors who are willing to embrace this uncertainty might benefit substantially from management’s promise of a target dividend-growth rate of 15-20%. The large alternative asset manager has US$800 billion of assets under management, including US$418 billion of fee-bearing capital. Other than earning management fees, it also earns performance fees from achieving investment targets for its investment funds. More than 2,000 institutional investors around the globe invest with BAM.
BAM offers a decent yield of 3.6% at writing. Should it achieve a 15% dividend-growth rate over the next five years, shares bought today would sit on a yield on cost of about 7.2% at the end of the period.
Investing takeaway
If goeasy and BAM fit your risk tolerance, consider accumulating shares at good valuations and hold for, at least, the next decade. Should they be able to raise their dividends sustainably at a high rate, you’d also be sitting on massive capital appreciation.
