What are we looking for?
Let's examine Canadian mid-cap dividend stocks.
More about today's screen
The last two days we looked at large-cap, dividend-growth stocks. Today, let's turn to mid-caps in the S&P/TSX completion index. (Stocks that are in the S&P/TSX composite but not in the S&P/TSX 60.)
"The reason investors need to pay attention to the dividend growers outside the TSX 60 is that they have uniformly outperformed their large-cap peers in the 60," said UBS strategist George Vasic, in a recent report.
There are five financial and 12 consumer/industrial stocks that have solid dividend growth track records since 1995, Mr. Vasic notes. Today's table sorts mid-cap dividend growth stocks by annualized growth for the last five years.
What did we learn?
Mr. Vasic divided the mid-cap dividend growth stocks into four groups. Annualized price performance is noted for each group in parenthesis: financials (14.2 per cent), other financials (21 per cent), consumer/industrials (18.1 per cent) and telecom/utilities (10.7 per cent).
Across the board, all four groups have outperformed the S&P/TSX completion index price return of 8 per cent annualized since 1995.
The mid-cap dividend growth groups have also outperformed the large-cap dividend growth groups from the S&P/TSX 60 since 1995. The large-cap financials rose 12.5 per cent annualized, non-financials 11.6 per cent and high-yield telecom/utilities 7.9 per cent over that time.
An investor might argue that mid-cap dividend growth rates aren't sustainable. These companies are growing faster than more mature businesses, so their dividend growth will slow as they mature and get larger.
"That seems probable, though there are now a decent number that have long dividend-growth track records," Mr. Vasic said. "Moreover, it also appears that the sum of their dividend yield and growth going forward should be in the double digits, and that they are likely to continue to be ahead of both the overall TSX completion index as well as their big cap peers."