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Each month I update readers of all the dividend increases in the Canadian Dividend All-Star List (Canadian companies that have increased their dividend for 5 or more years in a row.) along with a summary of these companies.
⭐ Find dividend growth stocks that have survived multiple recessions and increased dividends for 5, 10, 25+ years in a row.
These companies aren’t recommendations, but tracking recent dividend increases can be a good way to generate new dividend growth stock ideas as dividend increases can be a sign from management that they feel good about the future.
“a company that raises its dividend is truly signaling the state of its business to investors. Picture a boardroom, and the classic board of directorsʼ table filled with wizened business people, people who know that there are fads and fashions and cycles, and things can go up and down, and even go bump in the night. These directors know just how well their company is doing or how poorly. They know how much will be needed to fund capital expansion or research and development, or the next takeover. They know the whole financial picture, and they also know that dividend reductions are death to stock prices. The one thing a board never wants to do is decrease the dividend, so increasing a dividend is a clear statement that the companyʼs fortunes are positive—or at least positive enough to keep paying and to raise the dividend.”
Source: The Single Best Investment: Creating Wealth with Dividend Growth by Lowell Miller (Affiliate link, but I personally own and highly recommend this book.)
This month was a quiet one with only one dividend increase. Savaria Corporation (SIS.TO) increased their dividend an impressive 16.7%.
September 2018 Dividend Increase in the Canadian Dividend All-Star List
What is the Canadian Dividend All-Star List (CDASL)?
The CDASL is an excel spreadsheet with a lot of stock information that is typically used as a starting point to identify and screen Canadian dividend growth stocks. The list has been updated monthly since early 2013 and it has come to be one of the most popular resources of my website.
Download CDASL
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OK, now on to the dividend increase…
Savaria Corporation (SIS.TO) – 16.7% Dividend Increase
Savaria Corp; founded in 1979 and headquartered in Laval, Quebec, is one of the global leaders in the accessibility industry providing solutions for the physically challenged to increase their comfort, their mobility, and their independence.
Savaria designs, engineers, and manufactures products such as stair lifts/stair chairs, vertical platform lifts, inclined platform lifts, home elevators, commercial wheelchair lifts, limited use/limited accessibility elevators, ceiling lifts, wheelchair accessible van conversions, medical beds and therapeutic surfaces (Span). With manufacturing in Canada and China they distribute their products around the world (Canada, the United States, Australia, South America, and Europe) through their three business divisions:
- Accessibility Segment (50% of Revenue in the first six months of 2018)
- Adapted Vehicles Segment (12% of Revenue in the first six months of 2018)
- Span Segment (38% of Revenue in the first six months of 2018)
Savaria is quite a small company with a market cap under $1 billion, but it boasts impressive EPS growth at +20% over the past decade and high insider ownership.
Savaria Dividends
Despite its impressive earnings growth the dividend history, at first glance, doesn’t look very good. From 2005 to 2012 they cut and increase the dividend almost every other year.
Looks can be deceiving though, as their dividend policy at the time was to pay “50% of the prior year’s earnings before income tax and depreciation and amortization.” (Source: Savaria Corporation 2013 Annual Information Form) as a dividend.
In 2013 they changed from an annual dividend of $0.08 to quarterly dividend of $0.02 and changed their dividend policy to remove the requirement that it be 50% of the prior year’s earnings before income tax and depreciation and amortization. Since this change, the dividend has steadily increased over time without any cuts. I should also mention that the company now pays out a monthly dividend, not quarterly, having switched in 2017. I wouldn’t hold the dividend cuts too much against the company as they were caused by a unique dividend policy at the time.
When you understand the dividend background, Savaria Corp actually has some pretty impressive dividend growth metrics.
Savaria, which has a dividend streak of 5 years, recently increased their monthly dividend 16.7% from $0.0300 CAD to $0.0350 CAD. This dividend increase comes into effect with the dividend recorded on Oct 02, 2018. The dividend yield as of September 28, 2018, was 2.1%, and they have 5 and 10-year average annual dividend growth rates of 24.8% and 13.3% respectively.
Savaria Financial Strength & Valuation
The company isn’t rated by the credit agencies, but they appear to be in good financial health with a trailing-twelve-month (TTM) interest coverage ratio of 12.30, a low debt/equity ratio and high current and quick ratios.
Source: Morningstar
While the financial strength looks good, the valuation does not. The current yield of 2.1% is historically low for the company.
From a P/E perspective, a similar picture is painted with the TTM P/E above 30 and N12 P/E at 30.
In the past decade, it hasn’t been this high.
Savaria Final Thoughts
For the most part, I like what I see with this small cap stock Savaria. Where you lose me is the valuation, which is simply too rich. The other issue is that I’m not familiar with the industry so I don’t know if they have a sustainable competitive advantage or not. Should the price drop substantially I’ll revisit the stock at that time and try and figure out if the company has an economic moat.
Summary
Tracking recent dividend increases can be a good way to generate new dividend growth stock ideas as dividend increases can be a sign from management that they feel good about the future prospects of the company.
There was only one September 2018 dividend increase in the Canadian Dividend All-Star List (An excel spreadsheet with a lot of stock information on all Canadian companies that have increased their dividend for 5 or more calendar years in a row.):
- Savaria Corporation (SIS.TO) – 16.7% Dividend Increase
A 16.7% increase is a good signal from management, but I think Savaria’s stock price has gotten ahead of its valuation.
What’s your take on Savaria?
Disclosure: I do not own shares in Savaria Corporation. You can see my portfolio here.
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