Capital Power Corporation (TSX:CPX) announced last week that it would be raising its dividends yet again. Investors will now be collecting $0.5475 every quarter, up from the $0.5125 that the utility company was paying out beforehand. Although Capital Power doesn't have a terribly long streak of raising its payouts, it has been regularly hiking its dividend payments since 2014.
At its new dividend, the stock is yielding around 5.2% per year. That's an above-average payout as the S&P 500 pays less than 1.4%. Plus, with the impact of compounding, Capital Power investors who buy and hold the stock for years will benefit from future increases in the payouts. If the company were to raise its dividends by 7% on average, then it would take approximately 10 years for the dividend payments to double in size. However, given that its current streak isn't that long, it may be optimistic to project Capital Power will continue hiking its dividend at such high a rate for that long. The good news is the dividend remains in good shape; over the trailing 12 months, the company generated free cash flow of $382 million – easily enough to cover its dividend payments of $231 million during that period.
But even if Capital Power doesn't increase its dividend, it still pays a great yield and on a $20,000 investment, it could generate more than $1,000 in annual dividend income. And investors can also count on possible gains along the way. Over the past year, shares of Capital Power are up over 50%.
