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Canada’s Newest Dividend Aristocrats (Part 5)

Mat Litalien, MBA
A close up image of Canadian $20 Dollar bills
A close up image of Canadian $20 Dollar bills

Today, we’ll look at the last group of stocks that are being promoted to the Canadian Dividend Aristocrat list. In total, there were 15 new additions to the Canadian Dividend Aristocrat list. As mentioned yesterday, this was the second-highest number of new additions in a single year.

Below are a few of the key reasons why achieving Aristocrat status is important:

  • It increases the company’s credibility in the eyes of dividend growth investors;

  • It increases the company’s profile;

  • It increases the stock’s liquidity, as it’s added to funds that track the Index.

Without further ado, let’s look at the last trio of stocks who will achieve this prestigious status in 2020.

Maple Leaf Foods

The TSX Index enjoyed strong gains in 2019, yet Maple Leafs Foods (TSX:MFI) struggled to gain a footing. As of writing, this defensive stock was sitting on a loss of approximately 10%, which was far below the 17.77% posed by the S&P/TSX Consumer Staples Index.

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Will the company rebound in 2020? The good news is that the company is expected to return to growth after a down year. Earnings are expected to grow by 13% in 2020 before tapering off to the low single digits. Achieving Aristocrat status should also help the company’s profile.

Over the course of its five-year dividend-growth streak, it has grown the dividend by a robust average of 17% annually. Despite being lower, the last raise was a respectable 13.54%. Will double-digit growth continue?

It is very doubtful such a high dividend-growth rate will continue for much longer. It has a relatively high payout ratio (70% of next year’s earnings) and past 2020, growth rates are expected to drop considerably. Treat Maple Leafs Food for what it is — a defensive stock for times of uncertainty that will produce income above the average bond yield.

Restaurant Brands International

Next up we have Restaurant Brands International (TSX:QSR)(NYSE:QSR). Before amalgamation, both Tim Hortons and Burger King had respectable dividend-growth streaks of their own. It is therefore not surprising that the company has reached Aristocrat status only five years after amalgamation.

As one of the largest quick-service restaurant companies in North America, Restaurant Brands has rewarded investors in a big way. Since it merged, Restaurant Brands share price has jumped by approximately 115%. Over the past five years, the company has grown earnings by 25% on average, which has enabled double-digit dividend growth. It last raised dividends by 11.11% this past March.

Don’t expect the company to repeat this type of performance moving forward. Over the next five years, the expectation is for average annual earnings growth of only 7%. Combined with its current payout ratio of 60%, I expect the dividend growth to eventually taper and track earnings growth.

Quebecor

Outside of the Big Three telecoms, no other company in the sector is a Canadian Dividend Aristocrat — until now. Quebecor (TSX:QBR.B), one of few that can challenge the Big Three, will be the fourth telecom Aristocrat.

Unfortunately, Quebecor’s low yield (1.50% as of writing) isn’t going to win over dividend-growth investors. Don’t expect income investors to trade in their Big Three stock for Quebecor anytime soon, as the income simply isn’t on par.

However, what the company lacks in yield, it more than makes up in dividend growth and capital appreciation. The company has a very low payout ratio (in the low 20s), and it has been aggressively growing the dividend. In 2019, Quebecor more than doubled the quarterly dividend from $0.055 to $0.1125 per share.

Over the past five years, it has also trounced the capital returns of its peers. Quebecor has averaged 22.8% annual growth, more than double the average of the Big Three. Furthermore, it has the highest expected growth rates of the group over the next couple of years.

Considering the low payout ratio, don’t expect to see a sub-2% yield for very long. Now is the perfect time to get in on the ground floor and enjoy considerable dividend growth for years to come.

More reading

Fool contributor Mat Litalien has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends RESTAURANT BRANDS INTERNATIONAL INC. The Motley Fool has the following options: short January 2020 $94 calls on Restaurant Brands International.

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool Canada’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Motley Fool Canada 2019