Thought Leadership

For Sale: Dividend Growth

We believe that the time is right to consider buying high-quality dividend growth stocks. Good companies will continue to grow their dividends regardless of what happens to their stock prices and regardless of what happens politically or in response to other short-term related issues.

2018 was a bad year for almost every asset class, including dividend growth stocks. As a result, these companies have become cheaper to acquire.

At the supermarket, if you see an item on sale, the natural response is to want to buy more because you are getting a good deal. The same common-sense approach should also apply to dividend growth stocks. Furthermore, if the income from dividends grows significantly, similar to the aggregated growth of the Bristol Gate US Equity strategy, which has seen dividend growth at almost 20% annually for the last nine years and the Bristol Gate Canadian Equity strategy, which is seen dividends grow at over 12% annually in the past five years, you can see that your income as an individual investor will grow very quickly.

With time, this income growth is reflected in what we call yield on cost, the magic of compounding your income that leads to significant rising cash for the investor to receive annually.

Unlike bonds, dividend growth stocks that increase their dividends year after year, provide an ever-increasing return on investment. Consider a $20 stock paying a $0.40 annual dividend – a 2% yield. If that company grows its dividend at 10% annually, the dividend will grow to $2.69 after 20 years. The annual yield on the original cost of the investment will rise from 2% to over 13%.

In addition, there are important tax efficiencies with dividend growth securities that are well selected. Unlike a lot of portfolio activity based on short-term underlying assessments of stock price and whether they are cheap or expensive, dividend growth stocks continue to raise income and overtime stock prices reflect this fast and high growing stream of money. Furthermore, when a stock is in the growth phase of its dividends there is often little need to sell those names, leading to a higher tax efficiency by limiting portfolio turnover.

So what is the secret to finding these types of companies? Great companies generate excess capital from their businesses allowing them to reinvest in their operations while having enough left over to share with investors through growing dividends. The same companies go to work every day with the goal of increasing revenues and profits regardless of where their stock price happens to be.

Although recessions and specific direct challenges to individual businesses may halt the growth of dividends, the job of our investment managers is to estimate how these companies will behave during these periods and avoid companies that may potentially cut their dividends or stop increasing them.

Since inception almost 10 years ago, Bristol Gate has never owned a company that cut its dividend while in our portfolio.

Price declines like 2018 should be viewed as a good entry point for dividend growth investors. The lower price means you get more income for each dollar invested which should lead to better long-term income and returns.

Important Disclosures

There is a risk of loss inherent in any investment; past performance is not indicative of future results. Prospective and existing investors in Bristol Gate’s pooled funds or ETF funds should refer to the fund’s offering documents which outline the risk factors associated with a decision to invest. Separately managed account clients should refer to disclosure documents provided which outline risks of investing. Pursuant to SEC regulations, a description of risks associated with Bristol Gate’s strategies is also contained in Bristol Gate’s Form ADV Part 2A located at

This piece is presented for illustrative and discussion purposes only. It should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities and it does not consider unique objectives, constraints, or financial needs of the individual. Under no circumstances does this piece suggest that you should time the market in any way or make investment decisions based on the content. Investors are advised that their investments are not guaranteed, their values change frequently, and past performance may not be repeated. References to specific securities are presented to illustrate the application of our investment philosophy only, do not represent all of the securities purchased, sold or recommended for the portfolio, it should not be assumed that investments in the securities identified were or will be profitable and should not be considered recommendations by Bristol Gate Capital Partners Inc. A full list of security holdings is available upon request. For more information contact Bristol Gate Capital Partners Inc. directly. The information contained in this piece is the opinion of Bristol Gate Capital Partners Inc. and/or its employees as of the date of the piece and is subject to change without notice. Every effort has been made to ensure accuracy in this piece at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and Bristol Gate Capital Partners Inc. accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. We strongly recommend you consult with a financial advisor prior to making any investment decisions. Please refer to the Legal section of Bristol Gate’s website for additional information at

A Note About Forward-Looking Statements

This report may contain forward-looking statements including, but not limited to, statements about the Bristol Gate strategies, risks, expected performance and condition. Forward-looking statements include statements that are predictive in nature, that depend upon or refer to future events and conditions or include words such as “may”, “could”, “would”, “should”, “expect”, “anticipate”, “intend”, “plan”, “believe”, “estimate” and similar forward-looking expressions or negative versions thereof.

These forward-looking statements are subject to various risks, uncertainties and assumptions about the investment strategies, capital markets and economic factors, which could cause actual financial performance and expectations to differ materially from the anticipated performance or other expectations expressed. Economic factors include, but are not limited to, general economic, political and market factors in North America and internationally, interest and foreign exchange rates, global equity and capital markets, business competition, technological change, changes in government regulations, unexpected judicial or regulatory proceedings, and catastrophic events. Readers are cautioned not to place undue reliance on forward-looking statements and consider the above-mentioned factors and other factors carefully before making any investment decisions. All opinions contained in forward-looking statements are subject to change without notice and are provided in good faith. Forward-looking statements are not guarantees of future performance, and actual results could differ materially from those expressed or implied in any forward-looking statements. Bristol Gate Capital Partners Inc. has no specific intention of updating any forward-looking statements whether as a result of new information, future events or otherwise, except as required by securities legislation.


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