2025 should be another solid year for the market. Both the S&P 500 and TSX performed decently and hit new record highs. While the U.S. market was driven primarily by the technology sector, powered by the Artificial Intelligence (AI) theme, the Canadian market’s strong performance was driven mainly by its large exposure to gold miners amid record gold prices. Amid a solid bull market, some investors are starting to question whether they should consider “keeping some chips off the table” by increasing the defensive portion of their portfolios, which could act as a source of funds in the future should opportunities arise.

Unlike the U.S. market, which prioritizes capital gains, Canadians still prefer dividends at the end of the day. This is partly cultural and partly embedded in the tax system, which treats dividend income favourably through the dividend tax credit. As a result, dividends remain the most common form of capital return to shareholders in Canadian public equities, compared to the U.S., where share buybacks are typically preferred.

Investors can see this difference by comparing the two largest banks in each country. For instance, JP Morgan Chase (JPM) repurchases shares aggressively when its stock is undervalued and currently pays a moderate dividend yield of around 1.8%. In contrast, Royal Bank of Canada (RY) offers a dividend yield of roughly 3.0% and places heavy emphasis on dividend growth and consistency. (While RY does repurchase shares, it also issues a similar amount, which offsets the effect of those buybacks.)

Dividends are “real money” — they can be either spent or reinvested. Dividend income also provides the predictability and stability that many investors seek, especially those focused on income. Numerous public companies proudly highlight their decades-long track records of consistent and growing dividend payments as a badge of honour. Moreover, the market tends to reward such consistency with higher valuation multiples, as sustainable dividend growth signals strong underlying fundamentals.

Very few businesses are strong enough to withstand the pressures of competition, technological disruption, and economic volatility because, at its core, capitalism is fiercely competitive. Industries with above-average growth and attractive returns tend to attract heavy competition until excess profitability is driven out. As a result, companies that can consistently grow dividends year after year — even during economic downturns — often possess durable competitive advantages that are difficult for rivals to replicate. These qualities make them attractive candidates for long-term investment. As mentioned earlier, a healthy allocation to defensive holdings can also act as a future source of liquidity when new opportunities present themselves.

Buying and holding “dividend-growth machines” can be one of the safest ways to build generational wealth. It’s every dividend investor’s dream that, one day, their annual dividend income will equal their original cost basis. Here, we’ve filtered out a small subset of high-quality companies that have grown their dividend per share over the last five years, supported by healthy underlying growth in fundamentals.

Below, we screened for companies with the following criteria:

• 10-year compounded annual growth rate (CAGR) in dividend per share of at least 10%
• Market capitalization above $100 million
• Earnings before interest and tax (EBIT) CAGR of at least 10% over the past 10 years
• Dividend yield of at least 1.5%

These criteria highlight companies that have achieved at least 10% annualized growth in both dividends and EBIT over the past decade — a remarkably high bar to sustain. As usual, we prefer companies with market caps above $100 million, as they tend to be more mature and self-sustaining businesses.

Each individual metric is challenging to achieve on its own. The combination of these filters — 10-year EBIT growth of at least 10% and 10-year dividend CAGR of at least 10% — results in just 17 names within the Canadian equity universe.

Members will recognize several names from our Model Portfolios and coverage list, such as TFI International Inc. (TFII), Toromont Industries (TIH), and Alimentation Couche-Tard (ATD).

Lastly, the companies on this list are not recommendations, but rather a starting point for investors seeking to generate potential dividend-growth investment ideas.

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Disclosure: The analyst(s) responsible for this report do not have a financial or other interest in the securities mentioned.