Dividend Growth in the Canadian Market: Key Players and Trends

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Written by Aditya Raghunath at The Motley Fool Canada

Dividend-growth stocks are generally among the best-performing ones in the equity markets. For a company to raise dividends every year, it has to expand its cash flows consistently across market cycles. This indicates the cash flows are predictable, allowing companies to maintain the payouts even during challenging macro conditions.

Here are two such dividend growth stocks Canadian investors can consider buying right now.

Canadian Natural Resources stock

Valued at a market cap of almost $100 billion, Canadian Natural Resources (TSX:CNQ) offers investors a tasty dividend yield of 4.4%. Moreover, these payouts have risen by 21% annually in the last 24 years, showcasing the resiliency of CNQ’s cash flow and its business model.

In the third quarter (Q3) of 2023, CNQ reported adjusted net earnings of $2.9 billion and adjusted funds flow of $4.7 billion. After accounting for its base capital expenditures and dividend, its free cash flow totalled $2.7 billion in Q3.

CNQ’s diversified portfolio and long-life, low-decline assets enabled the company to deliver steady cash flow and reduce balance sheet debt. In the first 10 months of 2023, CNQ has returned over $6 billion to shareholders via dividends and buybacks.

CNQ should end 2023 with a net debt of $10 billion, after which it would distribute 100% of free cash flow to shareholders. Its board of directors recently approved an increase in CNQ’s base dividend by 11% to $0.90 per share. In 2023, dividends have increased by 18% year over year for CNQ, which is quite exceptional given the volatility surrounding oil prices.

Priced at 11.7 times forward earnings, CNQ stock is quite cheap and trades at a discount of 10% to consensus price target estimates.

Its history of dividend growth has allowed Canadian Natural Resources to deliver outsized gains to shareholders. In the last 20 years, CNQ stock has returned 1,007% to investors. After accounting for dividend reinvestments, total returns are closer to 1,900%.

goeasy stock

Another TSX stock with an impressive dividend growth streak is goeasy (TSX:GSY). Valued at a market cap of $2 billion, this Canada-based financial lending company pays shareholders an annual dividend of $3.84 per share, indicating a yield of over 3.2%.

goeasy provides non-prime leasing and lending services to Canadian consumers. It provides loans for home equity, automotive vehicle financing, purchase of retail goods, home improvement projects, and more. The company also leases household furniture, appliances, and electronics to Canadians.

A period of rising interest rates in the last 20 months has dragged shares of goeasy lower by 44% from all-time highs, allowing you to buy the dip. While the lending environment remains tepid, goeasy has survived multiple recessions in the past, creating significant wealth for shareholders.

In the last two decades, goeasy stock has returned over 2,000%. After accounting for dividends, cumulative returns are well over 3,380% despite the recent pullback. Despite the cyclicality associated with the financial sector, goeasy has increased dividends by more than 15% annually since November 2003.

Priced at 8.82 times forward earnings, goeasy stock is really cheap and trades at a discount of 45% to consensus price target estimates.

The post Dividend Growth in the Canadian Market: Key Players and Trends appeared first on The Motley Fool Canada.

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Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends Canadian Natural Resources. The Motley Fool has a disclosure policy.