John Heinzl is the dividend investor for Globe Investor's Strategy Lab. Follow his contributions here. You can see his model portfolio here.
Did you see the recent correction coming? I didn't. I'm terrible at predicting what the stock market will do.
Half the people out there will tell you they're terrible at it, too. The other half? They're lying.
But there's one aspect of investing that is eminently predictable, and you don't have to own a crystal ball or a Ouija board to profit from it.
I'm referring – if you haven't already guessed – to dividends.
Dividends are the Swiss trains of investing: They always arrive on schedule, regardless of what sort of turmoil the market is experiencing.
Some firms are so predictable, in fact, that investors can anticipate not only when they'll receive a dividend, but when the company will raise it.
That brings us to the subject of today's column.
Using Yield Hog's proprietary dividend stock screening system (more on that in a moment), I've identified five companies that will, barring a catastrophe, increase their dividends in the next few months.
Most of these companies have long track records of raising their dividends annually, and some are very specific about their dividend growth plans.
What is my "proprietary" system? Well, first I visit the company's website. Then I look up the dividend history (it's usually found in the investor relations section) to see whether the payment rises every year. If I'm feeling really ambitious, I also read through recent dividend announcements and look for any comments about the company's dividend policy.
Is the system foolproof? No. There are risks with every investment. But if a company has a history of increasing its dividend regularly, it's usually a positive sign.
Companies can't continue raising their dividends – at least not for long – unless their sales and profits are also growing. So a steadily rising dividend usually indicates that the company is doing something right.
I personally own all of the following TSX-listed stocks, and three of them (Enbridge, Canadian Utilities and Fortis) are also in my Strategy Lab model dividend portfolio.
Remember to do your own due diligence before investing in any company.
Also keep in mind that, because all of the following companies have relatively predictable cash flows, they behave somewhat like bonds.
That means, if interest rates rise, the share prices could take a hit. The risk is mitigated, to an extent, by the companies' growing earnings.
Brookfield Renewable Energy Partners (BEP.UN)
Close: $34.62 / Yield: 4.9 per cent
3-yr. annualized distribution growth: 5.3 per cent
In February, Brookfield Renewable raised its distribution by 7 per cent. Then in September, it hiked its distribution growth target to a range of 5 to 9 per cent annually, up from 3 to 5 per cent previously.
The operator of hydroelectric, wind and thermal generating facilities in North America, South America and Europe cited "strong organic growth prospects" and a "robust development pipeline of projects with premium return potential." These are strong hints that another distribution increase is coming, likely in February.
Brookfield Infrastructure Partners (BIP.UN)
Close: $44.20 / Yield: 4.7 per cent
3-yr. annualized distribution growth: 11.1 per cent
Brookfield Infrastructure owns utilities, railways, ports, toll roads, pipelines and other assets around the globe that generate stable and growing cash flows. Like its sister company, it targets distribution growth of 5 to 9 per cent annually, and typically announces increases in February.
Keep in mind that, as Bermuda-based limited partnerships, Brookfield Renewable and Brookfield Infrastructure pay distributions that are taxed differently than Canadian dividends.
(For more, see tgam.ca/DzTn and visit company's websites for tax information.)
Enbridge Inc. (ENB)
Close: $52.28 / Yield: 2.7 per cent
3-yr. annualized dividend growth: 12.9 per cent
Few dividend companies are as predictable as pipeline operator Enbridge, which has raised its payment for 19 consecutive years. With about $36-billion of commercially secured growth projects (as of March) and a business model that largely insulates it from volatile commodity prices, the company expects to increase its dividend by 10 to 12 per cent annually through 2017 – in line with growth in earnings per share. Increases are typically announced in early December.
Fortis Inc. (FTS)
Close: $34.85 / Yield: 3.7 per cent
3-yr. annualized dividend growth: 3.4 per cent
I recently profiled electric and gas utility operator Fortis. Its stock has been rebounding after years in the doghouse. Buoyed by a pair of U.S. acquisitions and investments in its Canadian operations, the company is poised to deliver solid growth in earnings per share and dividends over the next several years, analysts say. Increases are typically announced in December or January, and the fact that more than 90 per cent of Fortis's earnings are regulated makes it a conservative pick.
Canadian Utilities Ltd. (CU)
Close: $39.40 / Yield: 2.7 per cent
3-yr. annualized dividend growth: 9.7 per cent
Fearless prediction: Canadian Utilities will raise its dividend in January. How can I be so sure? Well, it's been hiking its dividend every January (and occasionally more often) for more than 20 years. The company – which operates natural gas and electric utilities, pipelines, power plants and other energy infrastructure assets – has about $5.5-billion of capital expenditures planned from 2014 through 2016, much of it targeted to electricity transmission in Alberta. That ought to keep powering the dividend higher.
John Heinzl