Hands up if you predicted last Friday's 3-per-cent rally on the S&P/TSX composite index.
Anyone? What about Monday's 2-per-cent drop?
I didn't. I have no idea what the market will do from one day to the next. Nobody does.
But there is one aspect of investing that is actually very predictable: dividends. Even as stock prices rise and fall with every economic and political headline – and sometimes for no apparent reason at all – dividends are models of stability.
Consider the utility operator Fortis Inc. (FTS-TSX). In the past 12 months, the shares traded as high as $42.23 and as low as $34.16. But Fortis's quarterly dividend remained the same, at 34 cents a share, through most of 2015 – until the company raised it to 37.5 cents effective with its Dec. 1 payment.
If stock prices are the scary roller-coaster rides in the investment amusement park, dividends are the scenic pedal boats. You can probably tell which ride I prefer.
Which brings us to today's topic. I've identified five stocks that give investors an especially pleasurable – and predictable – dividend ride. As a bonus, I expect all five of these companies to raise their dividends in February. That's been their pattern in recent years and – although no dividend is certain until it's declared by the board – I expect such annual increases to continue.
Remember to do your own research before investing in any security. Even a portfolio of solid dividend stocks requires monitoring.
TransCanada Corp. (TRP-TSX)
Price: $47.13, up $1.22
Yield: 4.4 per cent
Even as TransCanada's Keystone XL pipeline was denied (at least for now) and its Energy East proposal faces opposition, the company still has more than $13-billion of small- to medium-sized pipeline, power and other projects that are expected to start contributing to cash flow by the end of 2018. Citing this growth, the company in November said it expects to raise its dividend by 8 to 10 per cent annually through at least 2020 – with further increases likely if any of its many larger projects go forward. TransCanada typically raises its dividend when it announces fourth-quarter results in mid-February; Bloomberg forecasts an increase of nearly 8 per cent, to 56 cents a quarter from 52 cents.
BCE Inc. (BCE-TSX)
Price: $55.51, up 35 cents
Yield: 4.7 per cent
BCE posted solid third-quarter results in November, as it led the telecom Big Three in postpaid wireless subscriber additions and growth in average revenue per user. In keeping with BCE's recent pattern, I expect the company to raise its dividend when it announces fourth-quarter earnings and provides its annual outlook on Feb. 5. Over the past three years, the dividend has grown at an annual rate of 5.4 per cent, and Bloomberg estimates that the next increase will be about 4.6 per cent, which would boost the dividend to 68 cents a quarter from 65 cents. Owning shares of BCE (or of Rogers Communications Inc. or Telus Corp., both of which also increase their dividends regularly) is a great way to fight back against rising wireless and Internet bills.
Magna International Inc. (MG-TSX)
Price: $49.53, up 86 cents
Yield: 2.5 per cent*
After speeding uphill for years, Magna's shares abruptly slammed on the brakes in mid-2015 and they've been sliding backward ever since. But Magna's dividend has been climbing steadily: Over the past four years, it has risen at an annual rate of about 15 per cent, and I'm expecting another boost soon given that Magna usually announces an increase when it releases fourth-quarter results in February.
"We want to have a dividend rate that we can grow and sustain over time," Vince Galifi, Magna's executive vice-president and chief financial officer, said at a recent industry conference. Keep in mind that Magna declares dividends in U.S. dollars, so an upturn in the loonie would reduce the dividend's value for Canadians. Also, the auto industry is cyclical, so earnings are typically more volatile than, say, a pipeline or utility. Bloomberg sees Magna's dividend rising about 16 per cent, to 25.5 cents (U.S.) from 22 cents.
Brookfield Renewable Energy Partners LP (BEP.UN-TSX)
Price: $35.49, up $1.58
Yield: 6.6 per cent*
Brookfield Infrastructure Partners LP (BIP.UN-TSX)
Price: $46.99, up 14 cents
Yield: 6.4 per cent*
Brookfield Renewable and Brookfield Infrastructure have several things in common: Both are controlled by Brookfield Asset Management Inc., both operate long-lived, cash-generating assets and both target distribution growth of 5 to 9 per cent annually. Brookfield Renewable, which operates a growing portfolio of hydro and wind generating assets in North America, South America and Europe, has been facing challenges from currency exchange rates and lower water flows in Brazil, but analyst Bill Cabel of Desjardins Securities Inc. still expects a distribution increase of 5 to 7 per cent when the company announces fourth-quarter results on Feb. 4. Brookfield Infrastructure – whose global portfolio includes toll roads, utilities, railways, ports and communications towers – reports on Feb. 3 and I expect the company will also meet its distribution growth objective. Like Magna, both partnerships declare distributions in U.S. dollars. The tax treatment can be complex, so I avoid headaches by holding the units in my registered retirement savings plan.
*Yields are calculated by converting U.S. dollar dividend to Canadian dollars at the current exchange rate.
Disclosure: The author personally owns shares of FTS, BCE, TRP, BEP.UN and BIP.UN. He holds FTS, BCE, TRP and BIP.UN in his Strategy Lab model dividend portfolio (view it online at tgam.ca/divportfolio).