Got a case of the winter blahs? Well, cheer up.
We're fast approaching February, one of the most unpleasant months weather-wise, but for dividend investors, it's actually a wonderful time of year. That's because several Canadian-listed companies – including three members of my Strategy Lab model dividend portfolio – have historically chosen the dark days of February to hike their dividends. Dividend hikes aren't official until the board approves them, but I'm expecting all of these companies to come through with increases again next month. Remember to maintain a diversified portfolio and to do your own due diligence before investing in any security.
TransCanada Corp. (TRP-TSX)
Dividend yield: 3.5 per cent
Since 2000, pipeline operator and power producer TransCanada has more than tripled its asset base to about $87-billion while raising its dividend to $2.26 a share annually from just 80 cents. And there's plenty more to come: Citing $25-billion of near-term projects that will generate predictable earnings and cash-flow growth, the company expects to raise its dividend "at the upper end" of its guidance range of 8 per cent to 10 per cent through 2020. The dividend-growth window could be extended depending on the construction of another $45-billion of proposed medium- to longer-term projects, which include the Energy East and Keystone XL pipelines. With U.S. President Donald Trump signing an executive order to advance Keystone XL, the project – rejected by the previous U.S. administration – took a big step forward on Tuesday. Even without Keystone XL, TransCanada is an attractive dividend-growth story and I'm looking for another hike when the company announces fourth-quarter results, likely in mid-February.
BCE Inc. (BCE-TSX)
Dividend yield: 4.6 per cent
My kids use Instagram, Snapchat and YouTube. My wife is on Facebook. And I listen to Internet radio and watch TV shows and sports online. Result: Our household is chewing through more and more gigabytes of data every month, which – along with regular price increases from Bell – has sent our Internet bills up sharply. But as long as BCE continues to announce annual dividend hikes, I won't complain. On the wireless side, BCE has also shown a knack for squeezing more money out of customers: In the third quarter, it added 107,265 postpaid customers and average revenue per user rose 3.7 per cent – both beating expectations. While some analysts have expressed concerns about BCE's ability to continue growing its dividend at a 5-per-cent annual pace over the long term, "we do not believe the 5-per-cent dividend growth is at risk in the short to medium term," Desjardins Capital Markets analyst Maher Yaghi said in a November note. I'm expecting another dividend hike when BCE releases fourth-quarter results on Feb. 2.
Brookfield Infrastructure Partners LP (BIP.UN-TSX)
Dividend yield: 4.4 per cent *
Brookfield Renewable Partners LP (BEP.UN-TSX)
Dividend yield: 6 per cent *
Brookfield Infrastructure owns a growing collection of assets that are essential to the global economy – including railways, ports, utilities, toll roads, pipelines and communications towers.
By reinvesting in its businesses, making opportunistic acquisitions and benefiting from inflation indexation for about 70 per cent of its EBITDA (earnings before interest, taxes, depreciation and amortization), BIP has been able to raise its distribution regularly and is targeting annual growth of 5 per cent to 9 per cent.
Sister company Brookfield Renewable, which operates hydro- and wind-power facilities, aims to grow its distribution at a similar pace. I expect both Brookfield Infrastructure and Brookfield Renewable will announce increases when they release fourth-quarter results on Feb. 1 and Feb. 2, respectively.
Keep in mind that both are Bermuda-based limited partnerships whose distributions are declared in U.S. dollars and have different tax consequences than the eligible dividends paid by most Canadian corporations.
Magna International Inc. (MG-TSX)
Dividend yield: 2.3 per cent *
Even as Magna's shares have had a bumpy ride for the past couple of years, the auto-parts maker's dividend has continued to climb – to $1 (U.S.) annually in 2016, up from 55 cents in 2012. The company will almost certainly raise it again when it reports fourth-quarter results in February.
"We settled in a pattern of annual dividend increases … and we expect this pattern to continue to the extent that our earnings increase," Vincent Galifi, Magna's chief financial officer, told the Deutsche Bank global auto-industry conference this month.
With Magna's capital expenditures poised to fall after a period of heavy investment and its cash flow expected to rise "significantly" – totalling about $5-billion over the next three years – look for more capital to be returned to shareholders in the form of dividends and share buybacks.
*Yield is calculated by converting the U.S. dollar distribution into Canadian dollars and dividing it by the share price.
Disclosure: The author personally owns shares of TRP, BCE, BIP.UN and BEP.UN, and holds TRP, BCE and BIP.UN in his Strategy Lab model dividend portfolio.