A repeatable satisfying moment in investing is owning a dividend stock that increases its quarterly payout to shareholders.
Dividend increases are not an unambiguously great event - some companies increase payouts to shareholders with money that could be better used elsewhere, say to pay down debt or reinvest. But for the most part, a dividend increase is management’s way of saying we’ve grown our business and we’re sharing the benefits with our shareholders.
Dividend hikes are also a powerful generator of wealth, a point that is reinforced by the 2024 summary that dividend investing expert Tom Connolly has provided for 24 stocks he keeps an eye on. Average dividend growth for these stocks was 5.3 per cent, which contrasts nicely with the most recent inflation rate of 1.9 per cent.
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There’s a “dividend hikes in lean times” feeling with some of the increases in Mr. Connolly’s portfolio. Canadian Tire Corp. (CTC.A-T) boosted its dividend by 1.4 per cent, Canadian Utilities Ltd. (CU-T) by 1 per cent and Rogers Communications Inc. (RCI.B-T) kept its dividend steady. Overall dividend growth for 2024 compares to an 6.7-per-cent average last year.
But others on the list came through with percentage increases that stood out boldly in a year when returns on guaranteed investment certificates and cash-like investments steadily declined. Mr. Connolly’s year-end summary shows that Metro Inc. (MRU-T) increased its dividend by 10.3 per cent, Empire Co. (EMP.A-T) by 9.6 per cent and Manulife Financial Corp. (MFC-T) by 9.2 per cent. The life insurance business is obviously flourishing - Sun Life Financial Inc. (SLF-T) raised its dividend by 7.4 per cent and Great-West Lifeco (GWO-T) by 6.5 per cent, according to Mr. Connolly’s data.
Rising dividends can be a driver of higher share prices, which in turn mean lower dividend yields. Yields and share prices move in opposite directions. Mr. Connolly noted 17 stocks on his have risen in price in recent months. The other seven are out of favour right now, notably BCE Inc. (BCE-T). BCE increased its dividends by 3.1 per cent in early 2024, then announced later it would pause dividend increases.
BCE shares yielded about 11.5 per cent in early January, a reflection of extreme investor concern about the company’s performance and the sustainability of the dividend. Maybe BCE shouldn’t have increased its dividend in early 2024.