Canaccord Genuity reveals its top 10 dividend growth stock picks

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On Tuesday, Canaccord Genuity's research team issued a report stressing the importance of holding stocks with robust dividend growth.

Martin Roberge, the firm's portfolio strategist, suggested investors focus on cyclical stocks rather than defensive stocks. More specifically, he recommends stocks within the industrial, financials, and real estate sectors over stocks in the telecom, pipelines, and utilities segments.

His rationale: "Better global growth conditions should better insulate cyclical yielders from rising global bond yields. Also, cyclical yielders trade at a depressed 20 per cent discount to defensive yielders on a forward P/E (price-to-earnings) basis. That said, investors should not completely shun defensive yielders, as many of these stocks remain attractively valued relative to bond yields."

The research team identified 10 stocks across various sectors that have solid forecast dividend growth.

Here is the list of companies:

Consumer Discretionary Sector

Analyst Derek Dley said Canadian Tire Corporation Ltd. (CTC.A-T) is "one of the most dependable dividend growers". He believes management will announce a dividend increase of between 10 per cent to 15 per cent when the company reports its third quarter earnings in November. His longer-term outlook is positive, anticipating 10 per cent annual growth in the dividend. The stock's current quarterly dividend is set at 65 cents per share, yielding 1.8 per cent. Mr. Dley has a 'buy' recommendation and price target of $184.

Energy Sector

The firm highlighted three stocks with solid dividend growth potential.

Analyst Dennis Fong highlighted an attractive investment profile for Canadian Natural Resources Ltd. (CNQ-T), saying: "We believe the company is set to show its "wall of free cash flow" with the completion of its Horizon Phase 3 expansion later this year."

Last month, Canadian Natural's chief financial officer Corey Bieber echoed this optimism for the second half of 2017 stating in the earnings release, "In the next six months, Canadian Natural will reach another inflection point with full periods of production from the Horizon Phase 3 expansion and the AOSP (Athabasca Oil Sand Project) operations, which will drive positive significant free cash flow growth and result in continued debt reduction and a balanced capital allocation."

The stock is currently pays its shareholders a quarterly dividend of 27.5 cents per share or $1.10 per share yearly. This equates to a dividend yield of 2.8 per cent. Mr. Fong suggests investors may be rewarded with between 10-per-cent and 15-per-cent dividend growth in the coming year. He has a "buy" recommendation and price target of $47.

Suncor Energy Inc. (SU-T) is Mr. Fong's top stock pick among large caps. He has a "buy" recommendation and price target of $49. He argues that production growth and lower costs will enable the company to expand its dividend, forecasting dividend growth of "more than 10 per cent to 15 per cent over the next year".

The company currently pays its shareholders a quarterly dividend of 32 cents per share, equating to an annualized yield of 3.2 per cent.

Enbridge Inc. (ENB-T) is analyst David Galison's top pick given his expected annual dividend growth rate of between 10 per cent and 12 per cent through to the year 2024.

He highligheds that the company's dividend yield is presently at "its highest in recent history (since 2001)."

Mr. Galison added, "Dividend growth through 2019 is supported by the company's $31-billion secured capital program, while annual increases during 2020 to 2024 will require securing some of its unsecured capital projects and/or moving up the targeted dividend payout ratio of between 50 per cent and 60 per cent."

In June, the company paid a quarterly dividend of 61 cents per share to its shareholders, a 15 per cent year-over-year increase. The current dividend yield is 4.9 per cent. He has a "buy" recommendation and $59 price target on the stock.

Financials Sector

Analyst Scott Chan believes asset management firm Fiera Capital Corp. (FSZ-T) will maintain its solid pace of dividend increases due to five main growth drivers: "(1) higher AUM (assets under management) expected growth, (2) continued strong relative fund performance, (3) a positive net sales outlook, (4) margin expansion, and (5) low/no exposure to potential regulatory change."

In August, management announced a 6-per-cent increase in its quarterly dividend, lifting it to 18 cents per share. This equates to an annualized dividend yield of 5 per cent. Mr. Chan has a "buy" recommendation and $17 price target for the stock.

Among the Big 5 banks, Toronto-Dominion Bank (TD-T) stands out according to Mr. Chan. The analyst highlighted that "over the last 20 years, TD has delivered the highest growth among the banks with a CAGR (compound annual growth rate) of 11 per cent."

Looking forward, he anticipates the company will increase its dividend by 7 per cent, supported by the company's earnings growth. The company currently pays its shareholder a quarterly dividend of 60 cents per share, representing an annualized dividend yield of 3.6 per cent. Mr. Chan has a "buy" recommendation and $74 price target.

Industrials Sector

Analyst Yuri Lynk is not only forecasting solid dividend growth but significant price appreciation for shares of SNC-Lavalin Group Inc. (SNC-T). He has a "buy" recommendation and price target of $76, suggesting a potential price return of over 40 per cent. In the near-term, he anticipates the dividend will expand at a mid-single digit rate with dividend growth accelerating by the year 2019 or 2020. The current dividend is 27.3 cents per share, yielding 2 per cent.

Real Estate Sector

Analyst Mark Rothschild favours Brookfield Property Partners L.P. (BPY.UN-T). He believes management can deliver on its targeted annual distribution growth rate of between 5 per cent and 8 per cent noting, "It should be able to boost NOI (net operating income) through increasing occupancy and marking leases to market upon expiry. As of Q2/17 (the second quarter of 2017), the average rent across the office portfolio was 17 per cent below management's estimate of market rent. We expect a material increase in cash flow as management takes advantage of the mark-to-market opportunity."

The current yield is 5 per cent. Mr. Rothschild has a "buy" recommendation and price target of $28 (U.S.).

Analyst Jenny Ma is recommending Canadian Real Estate Investment Trust (REF.UN-T). The Trust has an impressive track record, increasing its distributions per unit for the past 16 consecutive years. As noted in the company's recent investor presentation, CREIT has a consistent high occupancy rate in the mid-90 per cent range for over the past decade. Its payout ratio is conservative. Ms. Ma noted, "CREIT has one of the lowest payout ratios among Canadian REITs" and expects "CREIT to maintain its track record of raising its distribution at least once per year by a magnitude of, on average, 3 per cent." She has a "buy" recommendation and $55 price target. CREIT is currently yielding 4.1 per cent.

Telecom Sector

Analyst Aravinda Galappatthige highlighted Telus Corp. (T-T), given its "sector-leading dividend growth of 10 per cent annually since 2010, and last year stipulated a targeted dividend growth rate of 7 per cent to 10 per cent through 2017 to 2019."

Supporting its dividend growth is the company's solid fundamentals. Mr. Galappatthige expects the company's free cash flow may expand at a double-digit rate for the next several years. He has a "buy" recommendation and $50 price target. The stock's dividend yield is currently 4.4 per cent.