Dividend growth is great, but it's even better with a side order of dividend momentum.
Let's define momentum as a company showing much stronger dividend growth in the past 12 months than in the previous five-year period. Of course, this is a very rough guide to future dividend increases. A company might get cocky and increase dividends in a way that proves unsustainable. But a spike in dividend growth can also suggest a company's executive team sees better times ahead.
Check the financials of a company with recent dividend growth momentum to get a sense of whether it's a one-shot deal. For some ideas on companies to investigate, I ran a screen in which stocks in the S&P/TSX 60 index were ranked by their one-year dividend growth rate. I then pulled out stocks with where the one-year growth rate was significantly higher than the annualized five-year rate. Some names that came up:
- Canadian Pacific Railway (CP): The dividend jumped almost 43 per cent in the past 12 months, according to Globeinvestor. The annualized five-year growth rate was 10.8 per cent.
- Agnico Eagle Mines (AEM): The one-year growth rate was 25 per cent; with gold prices falling over much of the past five years, the dividend fell almost 9 per cent annually over that period.
- Fortis Inc. (FTS): This dividend growth stalwart boosted its payout by 10.3 per cent in the past 12 months, up from a five-year average of 5.3 per cent.
- TransCanada Corp. (TRP): Up 8.7 per cent over the past 12 months and 6.1 per cent over the past five years.
- Canadian Imperial Bank of Commerce (CM): Up 8.4 per cent in the past year and 6.1 per cent per year in the past five years.
- Power Corp. (POW): Is this onetime dividend growth star on the comeback trail? The one-year dividend growth rate is 7.6 per cent, compared to 2.9 per cent over the past five years.
A few other stocks to consider: Metro Inc. (MRU), Gildan Activewear (GIL) and Saputo Inc. (SAP). Each modestly increased the one-year dividend growth rate over a five-year rate that was already quite strong.