My 5 Canadian Favorite Dividend Growth Stocks

Last Tuesday, I published my top five US dividend growth stocks. Today, I’m coming back with my Canadian picks. Believe it or not, there is more than banks and telecoms on the market for income seeking investors! As a long term dividend blogger, I’m often asked what are my favorite dividend growth stocks. It’s hard to make a short list as there are so many great companies out there. Based on my 7 investing principles, I’ve selected five I really like right now.

dividend growth stocks

ANDREW PELLER (ADW.A.TO)

Business Model

Andrew Peller owns wineries in British Columbia, Ontario and Nova Scotia. It doesn’t only produce its own wine, but also markets it along with other products. ADW owns several brands like Peller Estates, Trius, Hillebrand, Thirty Bench, Sandhill, Copper Moon, Calona Vineyards Artist Series VQA wines and Red Rooster. Currently it has an estimated 14% share of its total wine market and a 37% share of domestic wines.

Investment Thesis

Andrew Peller is known to grow its revenues through acquisitions. Since 1995, management invested over $114M to purchase 14 vineyards. The company built a solid relationship with provincial liquor stores, but also maintained company-owned retail stores in Ontario. Andrew Peller shows a strong and steady growth of its sales mainly due to the creation of multiple products, a strong marketing program and several acquisitions. The Canadian wine business is doing well and ADW continues to ride this bullish trend. Its recent alliance with Wayne Gretzky vineyard will not only be good for wine sales but will also open the door to whisky production.

Potential Risks

The wine industry and the domestic and international market in which ADW operates are consolidating. While this could be a great opportunity, it also brings stronger competitors to the table. ADW must continue investing in its brand awareness to keep its market share. Since wine is a luxury product, any economic downturns would affect ADW sales. I don’t think it’s an issue as the Canadian economy is more resilient than anticipated.

Dividend Growth Perspective

While the yield went down from 3.75% to 1.46%, the stock price surged 260% over the past years. The dividend payment also increased by 36% or 6.34% annualized growth rate during the same period. It is rare that we see such low payout ratio with such high cash payout ratio. Looking at its financial statement, we can see that the company had to invest massively recently, boosting capital expenditure to a record level. CAPEX should go back down to a more reasonable level in 2018. Therefore, dividend sustainability is not at risk.

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