While many investors focus on the usual dividend investors – banks and utilities – some of the most compelling dividend growth opportunities can be found off the beaten path.
Companies with strong cash generation, disciplined capital allocation, and a willingness to reward shareholders can quietly achieve outsized earnings growth over time.
There are two such Canadian stocks Tourmaline oil (TSX:TOU) and easy (TSX:GSY). They operate in very different industries and pose different risks, but both have demonstrated an exceptional commitment to increasing shareholder returns and generating strong total returns.
Tourmaline oil: a story of dividend growth hidden in energy
Tourmaline oil may not be the first name investors think of when looking for dividend growth, largely due to its exposure to volatile energy prices.
As a natural gas-weighted producer – with roughly 76% of production dependent on natural gas – Tourmaline’s financial results are naturally sensitive to fluctuations in commodity prices. That uncertainty has kept the stock trading largely sideways since 2022, even as the company itself continued to perform well.
Behind the scenes, however, Tourmaline has built one of the strongest dividend growth records in the Canadian energy sector. Since initiating a steadily increasing common stock dividend in 2018, the company has achieved a compound annual growth rate of approximately 27%.
Even more impressive, Tourmaline has been paying special dividends every year since 2021. During that period, these special payouts totaled roughly 2.8 times the value of regular dividends.
Investors should not assume that special dividends are guaranteed. Tourmaline distributes excess free cash flow after financing operations and growth, meaning lower energy prices or higher costs can reduce or eliminate these payments. That said, the company’s underlying cost structure provides a significant margin of safety.
Tourmaline benefits from a targeted position in the Montney Basin, producing dense gas and liquids that deliver higher value per well. Owning processing facilities further reduces operating costs, reinforcing its low-cost producer status.
At less than $60 per share at the time of writing, Tourmaline offers a regular dividend yield of approximately 3.3% with the potential for dividend growth and special dividends. The consensus among analysts suggests the stock is trading at a discount of roughly 16%, implying a near-term upside of almost 20%.
goeasy: High-yield dividend growth with economic sensitivity
goeasy represents a very different kind of dividend growth opportunity. As a non-prime consumer lender, the company’s performance is closely tied to the financial health of its borrowers and the broader Canadian economy. Economic downturns, rising unemployment or prolonged inflationary pressures could lead to higher loan delinquencies and credit losses.
Currently, goeasy’s annualized net depreciation rate is 8.9%, within management’s expected range of 8.75%–9.75%. While underwriting remains disciplined, early-stage delinquencies have increased, leading to higher loan loss provisions.
Regulatory pressure is another risk. The federal government’s 2024 decision to lower the maximum allowable interest rate from 47% to 35% raised concerns, although management expects to adapt by lowering the average interest rate to below 30% this year.
Despite these risks, goeasy’s dividend growth track record is exceptional. The company has maintained or increased its dividend for at least two decades. Dividend growth rates over three, five and ten years are approximately 17%, 26% and 30% respectively – figures that few Canadian companies can match.
At approximately $134 per share, goeasy offers a dividend yield of approximately 4.3%. Analysts see the stock trading at a steep discount of around 34%, implying near-term upside potential of more than 50% if sentiment improves.
Takeaway for investors
Tourmaline oil and goeasy are not traditional core dividend positions, but that is what makes them interesting. Both Dividend Knights have outperformed the broader Canadian market in total return and income growth over the past decade.
For investors looking for dividend growth beyond typical expectations, these stocks can serve as satellite positions within a diversified portfolio. Accumulating stocks during periods of weakness can improve both long-term income and total return potential.
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