We have said this many times. When buying dividend-paying stocks for our clients we look toward companies that have a history of raising dividends over time. When a company raises its dividends, it signals to investors that it believes profits will improve. Higher profits generally lead to higher stock prices, so buying companies that raise dividends regularly is the best way to grow your portfolio over time. RBC Capital Markets has done research to prove that dividend growers do indeed outperform.

From December 1986 until December 2010, the total portfolio returns from dividend growers was 12.5% compounded. Compare this to the TSX Composite, which delivered only 7.2% over the same period. Not surprisingly, non-dividend paying stocks only increased by 2.2% a year in that same period. There you have it—the stocks of companies that consistently raise dividends have outperformed the broader market and we believe that they will continue to do so.

One of our favourite Canadian dividend growers is Empire Company Limited. Empire is the parent company of Sobey’s, one of Canada’s largest grocery chains. The company also has interests in real estate and movie theatres. Empire has raised its dividend every year since 1998. Both Empire’s dividend and stock price have increased 500% from 1998 until today. Empire last raised its dividend 10.8% in July 2010. We expect a similar size increase this year.

Disclosure: The author and clients of Baskin Financial own shares in Empire Comany

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