Fortis Inc T.FTS

5 Dividend Stocks that Keep on Giving

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Motley Fool with Bryan White

December 30, 2016

Dear Fellow Fools,
 
It’s been a great year for stocks! As we near the end of a wild and crazy 2016 the S&P/TSX Composite Index has chalked up a total return of 21.6%. Despite the overall market’s impressive gains for the year it once again failed to outperform one select group of Canadian stocks. As you’ll see in the table below Canada’s Dividend Aristocrats have continued to consistently deliver outperformance. The index includes companies that have reliably increased their dividend payouts every year for at least the past five years.   
 

* Source: S&P Dow Jones Indices
 
There’s plenty of high quality companies to highlight on the Dividend Aristocrats list, but today I’ll give a brief update on five companies that grabbed my attention. These are not formal recommendations, but rather intended as a solid starting point for further research.
 
Fortis Inc. (TSX: FTS)
 
Market Cap: $16.5 billion
Dividend yield: 3.9%
 
Fortis is a North American utility company that manages electric and gas utilities in Canada and the U.S. Due to the regulated nature of its business Fortis generates reliable and steady cash flows allowing the company to raise its dividend for an incredible 43 consecutive years.
 
The company recently expanded in the U.S. with the acquisition of ITC Holdings. The $11.3 billion deal closed in October making it the largest acquisition in the company’s history. With ITC in the fold the company will now focus on organic growth in an effort to expand its base. Management recently released its updated spending budget which calls for $13 billion in total capital expenditures through 2021.
 
Enbridge (TSX: ENB)
 
Market Cap: $53.5 billion
Dividend yield: 3.7%
 
Enbridge is one of Canada’s largest oil and gas pipeline companies operating the vast Mainline system which stretches from the oil sands in northern Alberta south into the northern U.S. and southern Ontario. Thanks to a stable stream of cash flows from its regulated pipeline and gas utility businesses Enbridge has been able to grow its dividend payout at an average annual rate of 14% over the past decade.
 
Enbridge has also been busy on the M&A front agreeing to acquire Spectra Energy in a $28-billion all-stock deal in the fall. Enbridge was already Canada’s largest natural gas distributer, but this deal greatly expands Enbridge’s natural gas presence and offers a healthier diversification between liquids such as crude oil and gas. Despite the mega merger the company plans to continue to grow its dividend payout with a target of 10% to 12% annual per share growth through 2019.
 
Scotiabank (TSX: BNS)

Market Cap: $92.1 billion
Dividend yield: $3.9%
 
Canada’s third largest bank really needs no introduction. Scotiabank has the largest international footprint among Canada’s Big Five banks with operations in more than 55 countries around the world. Over the years, the bank has consistently earned attractive returns on capital and has garnered a solid reputation in its industry and in the investing community.
 
Scotiabank is also one of the most reliable dividend payers you’ll ever find. It’s paid out a consistent, and often rising, dividend for more than 180 years. It initiated its first dividend back in 1833, a year after the bank was founded, and has paid an annual dividend ever since. My records go back to 1996 showing consistent dividend per share increases each and every year.
 
Cineplex (TSX: CGX)

Market Cap: $3.2 billion
Dividend yield: 3.2%
 
Cineplex operates Canada’s largest movie theatre chain with approx. 77% market share and annual attendance of 77 million. The company owns and operates a vast network of film cinemas with 1,677 screens in 164 theatres strategically placed across the country.  CEO and President Ellis Jacob has done a great job growing the company’s premium priced seating and has helped diversify the business with a host of different growth avenues.
 
The company now has a thriving digital display business with clients that include Tim Horton’s, McDonald’s and Wal-Mart. It also provides online streaming services and owns 50% of the popular SCENE loyalty program. More recently, the company has ventured into amusement gaming and eSports. It’s safe to say there’s a lot going on at Cineplex besides its core theatre business. The company has raised its annual dividend payout in each of the past five years.
 
Computer Modelling Group (TSX: CMG)

Market Cap: $728 million
Dividend yield: 4.4%
 
Computer Modelling Group certainly deserves to be on this list given the impressive resilience the business has shown during the deep cyclical downturn in oil markets. The company supplies oil and gas companies with its own proprietary reservoir simulation software in an effort to increase drilling efficiency. The stickiness of CMG’s offerings have been on full display over the past year or two as the broader oilfield services industry has been hit hard by the dramatic fall in oil prices. Since the company’s peak in the fiscal year ending in March 2015 revenues are only down 10.5% while cash flows from operations have held up admirably, falling a modest 16.5%.
 
This is why Computer Modelling Group is often considered one of the lowest risk ways for investors to gain energy exposure and participate in an eventual recovery in oil markets. The company has raised its dividend payout each year since it initially introduced a dividend in 2004. There has been one exception, in fiscal 2016 the dividend payout per share remained flat.  
 
Foolish Bottom Line
 
Looking forward I expect the Dividend Aristocrats to continue to outperform the broader market over the long run. Primarily because of the one common theme among most of the company’s on this list: We think they are well-established, high quality companies that have exhibited stable cash flows.