Dividend growth stocks are a cornerstone of many investors' portfolios, offering a steady stream of income and the potential for long-term wealth creation. While the likes of Fortis and Enbridge are household names in this space, there are lesser-known Canadian companies quietly building impressive dividend records. Two such companies are AltaGas and MTY Food Group, both of which have been steadily increasing their dividends for several years. In this article, we'll take a closer look at these two stocks and why they deserve a place in your investment portfolio.
The Power of Dividend Growth
Dividend growth stocks are a powerful investment strategy for several reasons. Firstly, they provide a regular income stream, which can be particularly attractive to retirees or those seeking a steady cash flow. Secondly, dividend growth often indicates a company's financial strength and ability to consistently generate profits. This can be a sign of a well-managed business with a clear path to future growth.
AltaGas: Stability and Growth
AltaGas is a North American energy infrastructure company with a strong focus on stability and growth. Its regulated utility segment serves a large customer base in the mid-Atlantic and midwestern United States, providing a steady and reliable source of cash flow. This segment accounts for over half of the company's operations, ensuring a solid foundation for dividend growth.
The company's midstream segment is another key driver of growth. By gathering, processing, and exporting natural gas and liquefied petroleum gases (LPGs) from Western Canada to Asian markets, AltaGas benefits from a strong demand outlook. This segment has been a significant contributor to the company's consistent dividend growth, with a 5.5% dividend-growth rate over the last five years.
Management's confidence in the company's future is evident in their forecast of 5% to 7% annual dividend growth through 2030. This outlook is supported by a range of factors, including ongoing asset optimization, disciplined capital allocation, strategic growth projects, and a strong balance sheet. The market has responded positively, with the stock surging 125% over the last three years, reflecting strong LPG export growth, reliable utility earnings, and successful debt reduction.
While the shares currently offer a modest yield of 2.4%, long-term investors may find AltaGas attractive for its combination of dividend growth and business momentum. However, it's probably a safer buy on market corrections, as the stock appears close to analyst fair-value estimates.
MTY Food Group: An Overlooked Dividend Grower
MTY Food Group operates a different business model, focusing on franchising and operating restaurant brands worldwide. The company's asset-light, franchise-focused model generates recurring royalty and fee income, producing resilient cash flow. MTY's portfolio includes well-known brands across multiple dining categories, with revenue diversified across the United States, Canada, and international markets.
Despite facing pressure from softer consumer spending and portfolio rationalization efforts, MTY's profitability and cash generation remain resilient. In the first fiscal quarter, the company experienced a revenue decline of 6%, but normalized adjusted EBITDA was essentially flat. This demonstrates the company's ability to maintain its financial health during challenging times.
Management's confidence in the company's future is evident in their recent 12% dividend hike, announced in January. With shares trading 11% below the analyst consensus price target and offering a yield of 3.6%, investors are being paid to wait for growth to reaccelerate. This makes MTY Food Group an attractive option for income investors seeking a combination of yield and potential business recovery.
Investor Takeaway
AltaGas and MTY Food Group are two Canadian companies that are quietly building impressive dividend records. AltaGas offers stable cash flows and a clear path to continued dividend growth, while MTY combines an attractive yield with the potential for a business recovery. For investors seeking lesser-known Canadian companies that are steadily raising their dividends, both stocks warrant consideration. By adding these companies to your portfolio, you can benefit from their financial strength, consistent dividend growth, and the potential for long-term wealth creation.
In my opinion, these companies demonstrate the power of a well-managed business with a clear strategy for growth. While they may not be household names, they offer a compelling investment opportunity for those seeking a steady income stream and the potential for long-term gains.
