MP Market Review – November 1, 2024
Last updated by BM on November 5, 2024
Summary
This is a weekly installment of our MP Market Review series, which provides insights and updates on Canadian dividend growth companies we monitor on ‘The List’. To read all our newsletters and premium content be sure to check us out on magicpants.substack.com.
- This week, we discuss what to do when a company freezes its dividend.
- Last week, dividend growth of ‘The List’ stayed the same and has increased by +9.0% YTD (income).
- Last week, the price of ‘The List’ was down slightly with a return of +12.1% YTD (capital).
- Last week, there were no dividend announcements from companies on ‘The List’.
- Last week, there were two earnings reports from companies on ‘The List’.
- This week, fourteen companies on ‘The List’ are due to report earnings.
DGI Clipboard
“The best investment you can make is in a company that doesn’t have to change its dividend policy to stay afloat, but a freeze is sometimes a wise alternative to cuts.”
-Warren Buffett
When A Stock Fails To Raise Its Dividend
Intro
I’m reluctant to sell when I am building a position in any of our quality dividend growth stocks. My first objective when buying a stock is to hold it indefinitely and enjoy the steady, growing dividend income it provides. However, sometimes, changes occur that no longer align with the goals of my portfolio before I can fill out my position size. These changes may include a dividend cut or a dividend freeze (when a company fails to raise its dividend at the expected time).
Yesterday, Bell Canada (BCE-T), one of our quality dividend growers, announced a dividend freeze.
To determine if a stock that’s frozen its dividend still belongs in my portfolio, I follow my process:
Does the company’s long-term earnings power appear to have become impaired?
Before deciding to sell, it’s crucial to assess the company’s future prospects:
- Dividend Potential: Is there a realistic chance the company will still raise its dividend in the current year?
- Financial Health: Do the company’s future earnings and free cash flow support dividend growth? Or will obligations like debt take priority over returning cash to shareholders?
- Management’s Commitment: Does the leadership remain committed to dividend growth?
- Investment Appeal: If you didn’t already own the stock, would you buy it today for its income potential?
If a stock no longer meets my criteria, it becomes a candidate for sale. But before making a final decision, I ask one more question:
Are There More Attractive Ideas?
When a stock becomes a sell candidate, the next step is to explore whether a better alternative exists. Remember that once negative news (like a dividend freeze) is public, it’s often priced into the stock, which may push the yield higher. Yield on cost is irrelevant here; only the current yield matters, as it reflects what you’re giving up and what a replacement investment could provide.
Here’s what to consider when evaluating an alternative:
- Income Replacement: Will the new stock at least match the lost dividend income?
- Future Prospects: Does the alternative stock have strong future earnings and cash flow, debt management, and a commitment to dividend growth?
- Risk Level: Is this new investment more or less risky than the one it’s replacing?
If an alternative stock offers a clear upgrade in income reliability and growth potential, it’s time to sell the dividend-freezing stock and invest in the replacement. This approach keeps the portfolio’s objective—an ever-growing dividend income—on track.
Wrap Up
Yesterday was a tough day for Canadian investors, as Bell Canada (BCE-T) is a crucial income source for many. Fortunately, Bell Canada comprises only ~4% of our portfolio, yielding 7% from dividends alone. We’ve been here before—in 2018, our non-public Wealth-Builder Portfolio (USA) faced a similar situation with AT&T. After unloading non-core assets and managing their debt, AT&T has resumed growth, up 28% YTD. While Bell’s long-term earnings are uncertain, few income alternatives look more appealing. We see dividend freezes as opportunities for reassessment rather than immediate alarm.
DGI Scorecard
The List (2024)
The Magic Pants 2024 list includes 28 Canadian dividend growth stocks. Here are the criteria to be considered a candidate on ‘The List’:
- Dividend growth streak: 10 years or more.
- Market cap: Minimum one billion dollars.
- Diversification: Limit of five companies per sector, preferably two per industry.
- Cyclicality: Exclude REITs and pure-play energy companies due to high cyclicality.
Based on these criteria, companies are added or removed from ‘The List’ annually on January 1. Prices and dividends are updated weekly.
‘The List’ is not a portfolio; it is a coaching tool that helps us think about ideas and risk manage our model portfolio. We own some but not all the companies on ‘The List’.
Our newsletter provides readers with a comprehensive insight into the implementation and advantages of our Canadian dividend growth investing strategy. This evidence-based, unbiased approach empowers DIY investors to outperform both actively managed dividend funds and passively managed indexes and dividend ETFs over longer-term horizons.
For those interested in something more, please upgrade to a paid subscriber; you get the enhanced weekly newsletter, access to premium content, full privileges on the new Substack website magicpants.substack.com and DGI alerts whenever we make stock transactions in our model portfolio.
Performance of ‘The List’
Last week, dividend growth of ‘The List’ stayed the same and has increased by +9.0% YTD (income). How much did your salary go up this year?
Last week, the average price return of ‘The List’ was down slightly with a return of +12.1% YTD (capital).
Even though prices may fluctuate, the dependable growth in our income does not. Stay the course. You will be happy you did.
Last week’s best performers on ‘The List’ were Dollarama Inc. (DOL-T), up +3.41%; Loblaw Companies Limited (L-T), up +2.55%; and Alimentation Couche-Tard Inc. (ATD-T), up +2.25%.
Brookfield Infrastructure Partners (BIP-N) was the worst performer last week, down -4.45%.
| SYMBOL | COMPANY | YLD | PRICE | YTD % | DIV | YTD % | STREAK |
|---|---|---|---|---|---|---|---|
| ATD-T | Alimentation Couche-Tard Inc. | 1.0% | $73.04 | -4.8% | $0.70 | 17.4% | 14 |
| BCE-T | Bell Canada | 8.9% | $44.81 | -17.3% | $3.99 | 3.1% | 15 |
| BIP-N | Brookfield Infrastructure Partners | 4.7% | $34.11 | 11.1% | $1.62 | 5.9% | 16 |
| CCL-B-T | CCL Industries Inc. | 1.4% | $81.85 | 41.5% | $1.16 | 9.4% | 22 |
| CNR-T | Canadian National Railway | 2.2% | $150.98 | -9.5% | $3.38 | 7.0% | 28 |
| CTC-A-T | Canadian Tire | 4.7% | $150.11 | 8.3% | $7.00 | 1.4% | 13 |
| CU-T | Canadian Utilities Limited | 5.1% | $35.38 | 10.1% | $1.81 | 0.9% | 52 |
| DOL-T | Dollarama Inc. | 0.2% | $146.49 | 54.2% | $0.35 | 29.5% | 13 |
| EMA-T | Emera | 5.6% | $50.93 | 0.3% | $2.88 | 3.2% | 17 |
| ENB-T | Enbridge Inc. | 6.5% | $56.42 | 16.6% | $3.66 | 3.1% | 28 |
| ENGH-T | Enghouse Systems Limited | 3.3% | $30.45 | -10.4% | $1.00 | 18.3% | 17 |
| FNV-N | Franco Nevada | 1.1% | $131.71 | 19.6% | $1.44 | 5.9% | 16 |
| FTS-T | Fortis Inc. | 4.0% | $59.74 | 8.9% | $2.39 | 4.4% | 50 |
| IFC-T | Intact Financial | 1.8% | $269.16 | 32.4% | $4.84 | 10.0% | 19 |
| L-T | Loblaw Companies Limited | 1.1% | $177.41 | 38.0% | $1.92 | 10.0% | 12 |
| MFC-T | Manulife Financial | 3.9% | $41.13 | 42.4% | $1.60 | 9.6% | 10 |
| MGA-N | Magna | 4.5% | $41.97 | -24.4% | $1.90 | 3.3% | 14 |
| MRU-T | Metro Inc. | 1.6% | $82.91 | 21.0% | $1.34 | 10.7% | 29 |
| RY-T | Royal Bank of Canada | 3.4% | $170.12 | 27.9% | $5.72 | 7.1% | 13 |
| SJ-T | Stella-Jones Inc. | 1.3% | $86.99 | 13.6% | $1.12 | 21.7% | 19 |
| STN-T | Stantec Inc. | 0.7% | $113.77 | 8.7% | $0.83 | 7.8% | 12 |
| T-T | Telus | 7.0% | $21.90 | -7.7% | $1.53 | 7.1% | 20 |
| TD-T | TD Bank | 5.3% | $76.76 | -9.4% | $4.08 | 6.3% | 13 |
| TFII-N | TFI International | 1.2% | $132.07 | 0.7% | $1.60 | 10.3% | 13 |
| TIH-T | Toromont Industries | 1.6% | $123.66 | 9.6% | $1.92 | 11.6% | 34 |
| TRI-N | Thomson Reuters | 1.3% | $164.78 | 15.0% | $2.16 | 12.5% | 30 |
| TRP-T | TC Energy Corp. | 5.9% | $64.61 | 23.5% | $3.84 | 3.2% | 23 |
| WCN-N | Waste Connections | 0.7% | $176.96 | 19.4% | $1.17 | 11.4% | 14 |
| Averages | 3.2% | 12.1% | 9.0% | 21 |
Note: Stocks ending in “-N” declare earnings and dividends in US dollars. To achieve currency consistency between dividends and share price for these stocks, we have shown dividends in US dollars and share price in US dollars (these stocks are listed on a US exchange). The dividends for their Canadian counterparts (-T) would be converted into CDN dollars and would fluctuate with the exchange rate.
For more articles and the full newsletter, check us out on magicpants.substack.com. Don’t miss this opportunity to stay informed and make the most of your investments!
