Dividend income is one of the most attractive rewards of being an investor. Because, unlike capital gains which could be subject to market volatility, the dividend received is “real money” at the end of the day, which could be either spent or reinvested.

Over the long term, companies that pay stable, consistent and growing dividends year after year even during economic downturns are attractive candidates for long-term investment. This consistency demonstrates not only the resiliency in the business model, or what investors usually refer to as competitive advantage, but also signalling that the company is well-run by a shareholder-friendly management team. As a result, these companies are usually rewarded by the market with a premium multiple compared to industry peers and the market averages.

Buying and holding companies that could grow dividends over a long period of time is a brilliant way to build generational wealth, which is the hallmark of investing. Therefore, we think investors should pay more attention to dividend growth rather than the dividend yield. Here we have filtered out a small subset of high-quality companies that grew their dividend per share over the last ten years along with other high-quality filters. 

Below we have screened for companies with the following criteria:

• 10-year positive compounded annual growth rate (CAGR) in dividend per share
• Return on Capital (ROC) of at least 12%
• Market cap larger than $100 million
• Earnings before interest and tax (EBIT) CAGR of at least 5% in the last five years

Here is the screener:

The criteria above reflects companies that grew their dividend per share at a positive compounded annual growth rate (CAGR) in the last ten years. Secondly, we like high Return on Capital businesses because, over the long term, the total return investors are able to achieve from owning a business would be approximately similar to the return that the business generates. Therefore, having a high ROC that could be sustainable over the years is a very positive sign of a great business.

In addition, we like healthy growing businesses, as having a high ROC but with limited growth opportunities does not do any good for investors. As usual, we prefer companies that are over $100 million in market cap, as these companies have proven themselves to be more mature, self-sustainable entities.

Each criterion here is not a really high bar to achieve itself. However, a combination of them including 5-year EBIT growth (at least 5%), return on capital (12%), and positive 10-year dividend CAGR, the screen only results in 13 names. 

Members will recognize some of the names that we cover in our Model Portfolios and coverage list such as TFI International Inc. (TFII), Toromont Industries (TIH) and TMX Group Limited (X).

It is critical to note that although dividend growth is a positive sign, investors need to ensure the growth in dividend payment is supported by a growing fundamental of the business, not from financial engineering tactics such as leveraging up the balance sheet or issuing shares to pay for the dividends.

Lastly, these companies on the list are not recommendations, but rather a starting point that helps investors generate potential investment ideas.