The weather is getting colder, the days are getting shorter and everyone's utility bills are about to get bigger.
Well, don't despair. I've got just the thing to warm you up as winter approaches: dividend increases.
Predictable dividend growth is the cornerstone of my investing strategy, and today I'll be discussing three companies that I expect will raise their payments over the next three months – one each in October, November and December.
A single dividend increase alone won't make you wealthy. But when you combine many years of dividend increases and dividend reinvestments – plus the share price appreciation that usually accompanies a growing payout – you can generate some impressive returns.
This is the method I use in my Strategy Lab model dividend portfolio (view it online at tgam.ca/divportfolio) and the results have been gratifying. Through Sept. 30, my model portfolio posted a total return – including dividends – of 62.4 per cent since Strategy Lab was launched on Sept. 13, 2012. That works out to an annual return of 12.7 per cent, topping the S&P/TSX composite index's annual return of 7.6 per cent over the same period.
Keep in mind that dividend increases aren't official until the board declares them. But generally – barring a change in the outlook for the business – when a company has established a pattern of increasing its dividend, it will be reluctant to deviate from that script lest it disappoint shareholders. Still, it's important to do your own due diligence before investing in any security.
Cintas Corp. (CTAS - Nasdaq)
Price: $109.32 (U.S.)
Yield: 0.96 per cent
Don't let Cintas's modest yield fool you: North America's largest corporate uniform supplier (it also provides restroom supplies, cleaning and other services) has posted an annualized total return – assuming all dividends had been reinvested – of 12.3 per cent over the past decade, beating the S&P 500's annual total return of about 7.1 per cent over the same period. What's more, the company has raised its dividend – which is paid annually – for 32 consecutive years. Since 2010, those increases have come like clockwork in October, including last year's hefty 23.5-per-cent increase. With Cintas's results for the fiscal first quarter ending Aug. 31 easily topping estimates, the company looks set to extend its dividend growth record with another increase this month. One caveat: Trading at about 24 times estimated fiscal 2017 earnings, the stock isn't cheap. But companies such as Cintas, with a dominant market position and track record of double-digit earnings growth, rarely trade at bargain prices. That said, given the stock's recent run, waiting for a pullback might be prudent.
Telus Corp. (T - TSX)
Price: $42.34 (Canadian)
Yield: 4.3 per cent
Not sure about you, but my family's cellphone bills keep rising. Fortunately, as a Telus shareholder (and customer), my growing dividends from Telus help to offset those costs. Telus is one of the most predictable dividend growers around: When it posted first-quarter results in May, it also signalled its intention to raise its dividend twice a year through 2019 at an annual rate of seven to 10 per cent – extending a dividend growth program initially announced in 2011. Typically, increases are declared in May and November, which means the next increase will likely come soon. Telus's results have taken a hit because of the economic slump in Alberta, but in the second quarter it added 61,000 contract wireless subscribers – slightly trailing BCE and Rogers but beating analyst expectations of about 45,000. Thanks to its solid customer service, Telus also has one of the lowest turnover or "churn" rates in the wireless business – just 0.9 per cent in the second quarter. "We focus on trying to … keep our customers happy. It is significantly cheaper to retain a customer than it is to go in and load new ones," chief financial officer Doug French told a recent investor conference.
CT REIT (CRT.UN - TSX)
Price: $14.89
Yield: 4.6 per cent
If you've ever stopped at a Canadian Tire for a roll of hockey tape or a jug of washer fluid on a Saturday morning, you'll know that it remains one of Canada's busiest retail chains. That enduring popularity is one reason that CT Real Estate Investment Trust is so appealing as an investment. Created by Canadian Tire Corp. Ltd. in 2013, CT REIT owns a portfolio of more than 300 retail properties – the vast majority being Canadian Tire banners – that provide steady and growing cash flow. Thanks to annual rent escalators and the acquisition of new properties, CT REIT was able to raise its monthly distribution by 2 per cent in December, 2014, and a further 2.6 per cent in December, 2015. CT REIT's distribution growth record isn't very long – yet – but I wouldn't be surprised to see another increase this December. "CT REIT offers an exceptionally reliable and consistent operating and financial outlook [and] an attractive and well covered … distribution yield with strong prospects for regular increases," CIBC World Markets analyst Alex Avery said in a recent note.
Disclosure: the author personally owns shares of T and CRT.UN and holds T in his model dividend portfolio.