Dividend-paying stocks generally beat non-dividend paying stocks in the long run. However stocks that grow their dividends outperform dividend-payers in the long-term due to the effect of compounding and rising dividends.
The graph below shows that dividend growers outperform dividend payers in terms of total returns over the long run:
Click to enlarge
Source: Earning dividend income just makes sense, AGF Investments
The data shown above is for the S&P/TSX Composite Index, the benchmark index of the Canadian equity market from Dec 1986 to Dec 2012. It is not surprising to see that non-dividend payers are the worst performers. While dividend-payers yielded a total portfolio return of just over 10% dividend-growers earned even higher with returns of 12%. Hence from an investment standpoint, investors should select dividend-growers over dividend-payers when building a portfolio for the long-term such as for retirement.
In order to identify some dividend growing stocks I referred to the S&P/TSX Dividend Aristocrats Index. The definition of this index is as follows:
S&P/TSX Canadian Dividend Aristocrats® measures the performance of companies included in the S&P Canada BMI that have followed a policy of consistently increasing dividends every year for at least five years. Index constituents are weighted according to their indicated yield as of the last trading date in November.
Source: S&P Dow Jones Indices LLC
Ten stocks from the S&P/TSX Canadian Dividend Aristocrats index are listed below with their current dividend yield:
1.Company: Bank of Nova Scotia (BNS)
Current Dividend Yield: 3.79%
2.Company: TransCanada Corp (TRP)
Current Dividend Yield: 3.82%
Sector: Oil & Gas Transportation
3.Company: TELUS Corp (TU)
Current Dividend Yield: 4.17%
4.Company: BCE Inc (BCE)
Current Dividend Yield: 5.11%
5.Company: Toronto-Dominion Bank (TD)
Current Dividend Yield: 3.48%
6.Company: Suncor Energy Inc (SU)
Current Dividend Yield: 2.19%
7.Company:Rogers Communications Inc(RCI)
Current Dividend Yield: 3.68%
Sector: Wireless Telecom
8.Company:Imperial Oil Ltd (IMO)
Current Dividend Yield: 1.12%
9.Company:Canadian Pacific Railway Ltd (CP)
Current Dividend Yield: 0.88%
10.Company: Thomson Reuters Corp(TRI)
Current Dividend Yield: 3.45%
Note: Dividend yields noted above are as of Jan 6, 2014. Data is known to be accurate from sources used.Please use your own due diligence before making any investment decisions.
Disclosure: Long BNS, TD