“You have a pair of pants. In the left pocket, you have $100. You take $1 out of the left pocket and put in the right pocket. You now have $101. There is no diminution of dollars in your left pocket. That is one magic pair of pants.”

Month: May 2022

‘The List’ – Portfolio Review (May 2022)

Posted by BM on May 31, 2022 

Each month we walk through our valuation process using a company on ‘The List’ that meets our minimum of 6.5% EPS Yield. The company we will review today is Royal Bank (RY-T).

A fair valuation is the second rule in our three-step process. Buying when our quality stocks are sensibly priced will help ensure our future investment returns meet our expectations. We rely heavily on the fundamentals analyzer software tool (FASTgraphs) to help us understand the operating results of the stocks we invest in and then read the company’s website for investor presentations and recent earnings reports to learn more.

In arriving at a sensible price, we use an earnings-determined market price. Emotions determine the market price in the short run, and earnings determine the price in the long run. Proper investing is all about taking advantage of long-run opportunities that the short-run imbalances give you.

Intro:

Royal Bank of Canada is one of the two largest banks in Canada. It is a diversified financial services company offering personal and commercial banking, wealth management services, insurance, corporate banking, and capital markets services. The bank is concentrated in Canada, with additional operations in the U.S. and other countries.

Portfolio Review-April 2022-TFII

Historical Graph:

Price Correlated with Fundamentals May 2022
Source: FASTgraphs

Comments:

Royal Bank has a narrow valuation corridor. The Black Line (Price) never strays too far from the Blue Line (Normal P/E). A price below the average P/E line has historically been a good entry point for RY-T.

The fundamentals show a company whose annualized earnings have grown steadily over the last ten years at ~8.41%.

Dividend/Price Growth Alignment:

Dividend Price Growth Alignment May 2022

Comments:

We talk a lot in our blog about dividend growth and price growth alignment over the longer term. RY-T is one of those companies that follow this pattern. We like to see our income and capital double over ten years. These graphs show that the price growth is currently slightly ahead of dividend growth, a sign of overvaluation.

Yield Chart:

Yield Chart May 2022

Comments:

Popularized by Investment Quality Trends (IQT) in the 1960s, ‘Dividend Yield Theory’ is simple and intuitive. It says that for quality dividend growth stocks, meaning those with stable business models that don’t significantly change over time, dividend yields tend to revert to the mean.

In the case of Royal Bank, the dividend is not quite at its average ten-year historical yield of 3.79%. This conveys that RY-T is slightly overvalued based on today’s price. A five-year chart will show similar overvaluation.

Performance Graph:

Source: FASTgraphs

Comments:

Royal Bank has had an average annualized dividend growth rate of 7.63% over the last ten years. The company also has an annualized total return of 13.12% over that same period. RY-T recently announced a dividend increase of ~7.0%, bringing their 2022 growth rate to 14.8%. This increase helps make up for the restrictions imposed in March of 2020 by regulators not to allow banks and insurers to raise dividends or do share buybacks due to the stimulus provided by the Bank of Canada during the pandemic.

Estimated Earnings:

Estimated Earnings May 2022
Source: FASTgraphs

Comments:

Using the “Normal Multiple’ estimating tool from FASTgraphs, we see a blended P/E average over the last five years of 11.68. Based on Analysts’ forecasts one and a half years out, they are estimating an annualized return, based on today’s price, of 10.14% should RY-T trade at its five-year average blended P/E.

Blended P/E is based upon a weighted average of the most recent actual value and the closest forecast value.

Of importance is that analysts have been revising their estimates for 2023 and beyond downwards recently. This year, analysts do not see a pullback in earnings but are being a bit cautious on earnings growth for RY-T twelve to eighteen months out.

Analyst Scorecard:

Source: FASTgraphs

Comments:

Analyst performance on hitting estimates over the years is above average on one and two-year earnings projections. Analysts’ forecasts have hit or beat ~85% of the time on one-year estimates and ~92% on two-year forecasts.

Recent Earnings Report-Q2 2022:

“The resilience of our diversified business model, prudent risk and capital management, and strategic investments in talent and technology continued to define our performance in the second quarter. We remain well-positioned for future growth, and to deliver differentiated long-term value for our clients, employees and shareholders. At a time when geopolitical tensions, inflationary pressures and global supply chain issues are creating an uncertain macroeconomic backdrop, I’m proud of how RBC employees continue to drive positive change in our communities and deliver trusted advice and insights for those we serve. We will continue to leverage our scale and financial strength, and the powerful combination of our people and culture, to play a leading role in shaping a thoughtful transition to net zero and an inclusive post-pandemic future.”

– Dave McKay, RBC President and Chief Executive Officer

Highlights:

Outlook:

“Inflation has surged higher and unemployment rates have continued to fall, prompting central banks in Canada, the U.S. and the United Kingdom (U.K.) to increase interest rates and to reduce asset holdings. The conflict between Russia and Ukraine has exacerbated global supply chain challenges and pushed key commodity prices higher, intensifying inflationary pressures. The economic impact from the COVID-19 pandemic has eased in most regions with recoveries in travel and hospitality sectors contributing to near-term growth momentum. However, the COVID-19 pandemic continues to impact goods manufacturing and supply, including economic disruptions in China resulting from stringent efforts to control virus spread. Low unemployment and strong demand for workers are driving wages higher. Central banks are expected to continue raising interest rates at the most aggressive pace in decades, which is expected to slow GDP growth later this year and into calendar 2023.”

Summary:

Royal Bank is a high-quality Canadian dividend growth stock, as shown by every metric we use to assess quality. Valuation is a little high based on today’s price but not frothy. Rising interest rates are generally suitable for bank stocks, but loan and mortgage defaults are not. Entering a position now is not a terrible idea, but given the volatility of the markets lately, we are hoping for a better entry point.

MP Market Review – May 27, 2022

Last updated by BM on May 30, 2022

“We don’t promise perfection – we deliver on a probability-weighted process. Our process is based on probabilities, not certainties!” Hedegeye CEO, Keith McCullough

We follow Hedgeye to gain a macro view of the economy and appreciate the insights into their process, much of which could be applied to our dividend growth investing strategy.

We were asked by a subscriber this week why we have been a little tentative in sending out DGI Alerts for buying stocks in our new MP Wealth-Builder Model Portfolio (CDN). The answer has a few parts to it.

First, the drawdown in the financial markets has mostly been more of a global one than a Canadian-specific one. Our markets have held up pretty well thus far. On top of that, most of the price pullbacks on Canadian stocks have been on companies that were overvalued coming into 2022. Many are still above their historical fair value.

Secondly, the angst felt by the subscriber is one of breaking the preconditioned habit of ‘buying the dips’ in the market over the last few years, and it is not an easy one to toss aside. This habit works well in bull markets but not so much in a bear market with rising interest rates.

Thirdly, when it comes to earnings, a stock may look sensibly priced at 15x earnings after a price decrease, but what happens if the earnings come in 20% lower than expected. The revised multiple is now closer to 19x. This could happen if the central banks are not careful when trying to cool off inflation with aggressive interest rate hikes.

Finally, we are just getting into the Q2 earnings season, which should be the most challenging year-over-year (YoY)  comparisons we’ve ever seen.

Walmart and Target are recent examples of where an earnings miss combined with a YoY net income miss of 25% and 50%, respectively, can wreak havoc on a company’s stock price. This scenario has the potential to panic a lot of investors and is the reason we are being more cautious right now on our purchases. Always remember that emotions determine the market price in the short run.

In summary, the time to buy may be soon, but not until we have a more straightforward path to earnings and economic data that is reaccelerating or at least a greater margin of safety if there are some short-term challenges. The probability continues to rise that we will see some opportunities shortly to purchase our quality dividend growers at a ‘sensible price’.

Performance of ‘The List’

Last week, ‘The List’ was up a couple of points with a minus -0.8% YTD price return (capital). Dividend growth of ‘The List’ was also up slightly at 10.2% YTD, demonstrating the rise in income over the last year.

The best performers last week on ‘The List’ were Canadian Tire (CTC-A-T), up 5.3%; Dollarama (DOL-T), up 4.6%; and Loblaws (L-T), up 4.4%.

Emera (EMA-T) was the worst performer last week, down -1.4%.

Recent News

Bankers buck gloomy trend by forecasting growth amid concerns about economic slowdown

“Top executives at two major Canadian banks predict they can keep adding new loans and increasing profits in the coming quarters, offering an optimistic outlook for the financial sector that is at odds with economists’ increasingly gloomy forecasts of a downturn ahead.”

Dividend raises this past week by most Canadian banks sending the same signals. Banks are remaining optimistic.

How central bankers lost their grip on inflation

“The Bank of Canada, like many central banks overseeing advanced economies, was slow to start raising rates, even as it became clear that high inflation was not going to be a temporary blip.”

A key point in the article is that if employees and businesses feel inflation will remain high they will demand higher wages and set higher prices making inflation a self-fulfilling prophecy.

“There’s no good way to do this,” Prof. Melino said. “It’s going to hurt. You can’t get rid of inflation without pain. And the credibility will come from its willingness to take the blame to get things going again.”

For dividend growth investors, pain translates into opportunity. We can buy more future income by purchasing our quality dividend growers when they are on sale.

There are no companies on ‘The List’ due to report earnings this week.

Dividend Increases

One company on ‘The List’ announced a dividend increase last week.

Royal Bank (RY-T) on Thursday said it increased its 2022 quarterly dividend from $1.20 to $1.28 per share, payable August 24, 2022, to shareholders of record on July 23, 2022.

This represents a dividend increase of 7%, marking the 12th straight year of dividend growth for this quality financial institution.

Earnings Releases

Last week was the beginning of the Q2 2022 earnings season for the Canadian banks. Two of the larger ones, Royal and TD, are on ‘The List’ and reported on Thursday.

Royal Bank (RY-T)

“The resilience of our diversified business model, prudent risk and capital management, and strategic investments in talent and technology continued to define our performance in the second quarter. We remain well-positioned for future growth, and to deliver differentiated long-term value for our clients, employees and shareholders. At a time when geopolitical tensions, inflationary pressures and global supply chain issues are creating an uncertain macroeconomic backdrop, I’m proud of how RBC employees continue to drive positive change in our communities and deliver trusted advice and insights for those we serve. We will continue to leverage our scale and financial strength, and the powerful combination of our people and culture, to play a leading role in shaping a thoughtful transition to net zero and an inclusive post-pandemic future.”

– Dave McKay, RBC President and Chief Executive Officer

Highlights:

Q2 comparison 2022 to 2021

Outlook:

“Inflation has surged higher and unemployment rates have continued to fall, prompting central banks in Canada, the U.S. and the United Kingdom (U.K.) to increase interest rates and to reduce asset holdings. The conflict between Russia and Ukraine has exacerbated global supply chain challenges and pushed key commodity prices higher, intensifying inflationary pressures. The economic impact from the COVID-19 pandemic has eased in most regions with recoveries in travel and hospitality sectors contributing to near-term growth momentum. However, the COVID-19 pandemic continues to impact goods manufacturing and supply, including economic disruptions in China resulting from stringent efforts to control virus spread. Low unemployment and strong demand for workers are driving wages higher. Central banks are expected to continue raising interest rates at the most aggressive pace in decades, which is expected to slow GDP growth later this year and into calendar 2023.”

See full Earnings Release here

Provisions for Credit Losses (PCL) have been reduced at Royal Bank since last quarter and were an important component in RY-T showing an increase in Net Income in Q2. This accounting transaction reflects the reduced uncertainty relating to the COVID-19 pandemic. Overall RY-T seems to be in pretty good shape for now. A nice 7% bump to the dividend keeps us happy as well.

 

Toronto Dominion Bank (TD-T)

“TD’s second quarter performance reflects the strength of our diversified business model and customer-centric approach,” said Bharat Masrani, Group President and CEO, TD Bank Group. “We have delivered strong revenue growth across our businesses and we enter the second half of the year well-positioned to support households and businesses as they navigate an evolving economic environment. TD will continue to invest in our people, technology, and innovation to exceed our customers’ rapidly changing expectations and help shape the future of banking.”

Highlights:

SECOND QUARTER FINANCIAL HIGHLIGHTS, compared with the second quarter last year:

  • Reported diluted earnings per share were $2.07, compared with $1.99.
  • Adjusted diluted earnings per share were $2.02, compared with $2.04.
  • Reported net income was $3,811 million, compared with $3,695 million.
  • Adjusted net income was $3,714 million, compared with $3,775 million.

YEAR-TO-DATE FINANCIAL HIGHLIGHTS, six months ended April 30, 2022, compared with the corresponding period last year:

  • Reported diluted earnings per share were $4.09, compared with $3.76.
  • Adjusted diluted earnings per share were $4.09, compared with $3.86.
  • Reported net income was $7,544 million, compared with $6,972 million.
  • Adjusted net income was $7,547 million, compared with $7,155 million.

See full Earnings Release here

With Toronto Dominion, it was interesting to note that the year-over-year comparison between Q2 in 2021 versus Q2 in 2022 was lower in all segments of the business. If we interpret the numbers correctly, the slowdown in the economy from TD-T’s perspective has already begun.

 

Below is a snapshot of ‘The List’ from last Friday’s close. For a sortable version of ‘The List’, please click on The List menu item.

‘The List’ is not meant to be a template for investors to copy exactly. Rather, its purpose is to provide investment ideas and a real-time illustration of dividend growth investing in action. It is not a ‘Buy List’ nor does it reflect the composition or returns of our Magic Pants Wealth-Builder (CDN) Portfolio. It is only a starting point for our analysis and discussion.

The List (2022)
Last updated by BM on May 27, 2022

*Note: The following graph is wide, you can scroll to the right on your device to see more of the data.

SYMBOL COMPANY YLD PRICE YTD % DIV YTD % STREAK
AQN-N Algonquin Power & Utilities 4.8% $14.51 1.1% $0.70 5.4% 11
ATD-T Alimentation Couche-Tard Inc. 0.8% $57.03 9.5% $0.44 18.1% 12
BCE-T Bell Canada 5.3% $68.82 4.4% $3.64 4.0% 13
BIP-N Brookfield Infrastructure Partners 3.6% $60.29 -1.3% $2.16 5.9% 14
CCL-B-T CCL Industries 1.6% $60.48 -10.8% $0.96 14.3% 20
CNR-T Canadian National Railway 2.0% $145.11 -6.3% $2.93 19.1% 26
CTC-A-T Canadian Tire 3.4% $170.37 -7.0% $5.85 24.5% 11
CU-T Canadian Utilities Limited 4.5% $39.86 8.9% $1.78 1.0% 50
DOL-T Dollarama Inc. 0.3% $71.41 12.6% $0.22 9.2% 11
EMA-T Emera 4.2% $63.32 1.2% $2.65 2.9% 15
ENB-T Enbridge Inc. 5.9% $58.78 18.7% $3.44 3.0% 26
ENGH-T Enghouse Systems Limited 2.1% $33.89 -26.1% $0.72 16.3% 15
FNV-N Franco Nevada 0.9% $142.57 4.8% $1.28 10.3% 14
FTS-T Fortis 3.4% $63.79 5.5% $2.14 2.9% 48
IFC-T Intact Financial 2.2% $180.22 10.1% $4.00 17.6% 17
L-T Loblaws 1.3% $116.07 13.0% $1.54 12.4% 10
MGA-N Magna 2.8% $63.96 -21.6% $1.80 4.7% 12
MRU-T Metro 1.6% $69.87 4.2% $1.10 12.2% 27
RY-T Royal Bank of Canada 3.8% $130.95 -4.3% $4.96 14.8% 11
SJ-T Stella-Jones Inc. 2.2% $35.68 -12.3% $0.80 11.1% 17
STN-T Stantec Inc. 1.2% $57.55 -18.0% $0.71 6.8% 10
TD-T TD Bank 3.7% $95.99 -3.4% $3.56 12.7% 11
TFII-N TFI International 1.3% $81.36 -26.5% $1.08 12.5% 11
TIH-T Toromont Industries 1.4% $110.52 -2.8% $1.52 15.2% 32
TRP-T TC Energy Corp. 4.9% $73.13 22.4% $3.57 4.4% 21
T-T Telus 4.2% $31.49 5.8% $1.33 6.2% 18
WCN-N Waste Connections 0.7% $128.49 -4.2% $0.92 8.9% 12
Averages 2.7% -0.8% 10.2% 18

MP Market Review – May 20, 2022

Last updated by BM on May 23, 2022

“Measuring performance without simultaneously measuring valuation is a job half done.” Chuck Carnevale

As an income investor we do not look to sell in a market panic. We are focused on only one metric; how much did my income rise over the last year. If you use ‘The List’ we publish on the blog as an example of a dividend growth portfolio, your answer today would be that you are up 10.1% YTD.

Falling prices provide us with opportunities. An opportunity to grow our income and the opportunity to grow our long term capital returns.

The US markets are down a lot more than the Canadian markets so we haven’t had as many good opportunities to add to our CDN portfolios. With more interest rate hikes signalled by central banks on both sides of the border, higher wages and other input costs putting pressure on margins and lockdowns in Asia continuing to affect the supply chains, we feel our patience will be rewarded soon.

Performance of ‘The List’

Last week, ‘The List’ was flat with a minus -2.6% YTD price return (capital). Dividend growth of ‘The List’ remains at 10.1% YTD, demonstrating the rise in income over the last year.

The best performers last week on ‘The List’ were Stantec Inc. (STN-T), up 4.6%; Enghouse Systems Limited (ENGH-T), up 4.1%; and Emera (EMA-T), up 4.1%.

Canadian Tire (CTC-A-T) was the worst performer last week, down -7.9%.

Recent News

It’s an ideal time for adopting the Number One defensive investing strategy for retirees

“The best way to protect your retirement savings from a market crash is to safely park enough money to cover your income needs for two to three years.”

As dividend growth investors, our defence is provided from the growing dividend income we receive each and every year. We are never caught having to sell our quality companies for income or keep large amounts of cash on the sidelines in case the market corrects.

Based on earnings, stocks could have even further to fall

“Up until now, the crash has been largely predictable – a simple but painful demonstration of what happens when inflated stock prices run into the buzz saw of rising interest rates.”

The article goes on to say that over the next few quarters, earnings releases will dictate if we are at the bottom or is there more room to fall.

We have yet to see the kind of carnage of the US stock markets here in Canada. Since peaking, $8,000,000,000,000 has been wiped out from the S&P 500’s market cap. Up in smoke. The NASDAQ is down over -24%. Bitcoin is down over -55%.

There are two companies on ‘The List’ due to report earnings this week.

Toronto Dominion Bank (TD-T) will release its second-quarter 2022 results on Thursday, May 26, 2022, before markets open.

Royal Bank (RY-T) will release its second-quarter 2022 results on Thursday, May 26, 2022, before markets open.

Dividend Increases

There were no companies on ‘The List’ that announced a dividend increase last week.

Earnings Releases

There were no earnings releases last week.

 

Below is a snapshot of ‘The List’ from last Friday’s close. For a sortable version of ‘The List’, please click on The List menu item.

‘The List’ is not meant to be a template for investors to copy exactly. Rather, its purpose is to provide investment ideas and a real-time illustration of dividend growth investing in action. It is not a ‘Buy List’ nor does it reflect the composition or returns of our Magic Pants Wealth-Builder (CDN) Portfolios. It is only a starting point for our analysis and discussion.

The List (2022)
Last updated by BM on May 20, 2022

*Note: The following graph is wide, you can scroll to the right on your device to see more of the data.

SYMBOL COMPANY YLD PRICE YTD % DIV YTD % STREAK
AQN-N Algonquin Power & Utilities 4.9% $14.42 0.5% $0.70 5.4% 11
ATD-T Alimentation Couche-Tard Inc. 0.8% $55.61 6.7% $0.44 18.1% 12
BCE-T Bell Canada 5.4% $67.53 2.5% $3.64 4.0% 13
BIP-N Brookfield Infrastructure Partners 3.5% $61.20 0.2% $2.16 5.9% 14
CCL-B-T CCL Industries 1.6% $60.80 -10.3% $0.96 14.3% 20
CNR-T Canadian National Railway 2.0% $143.24 -7.5% $2.93 19.1% 26
CTC-A-T Canadian Tire 3.6% $161.80 -11.7% $5.85 24.5% 11
CU-T Canadian Utilities Limited 4.4% $40.29 10.1% $1.78 1.0% 50
DOL-T Dollarama Inc. 0.3% $68.30 7.7% $0.22 9.2% 11
EMA-T Emera 4.1% $64.20 2.6% $2.65 2.9% 15
ENB-T Enbridge Inc. 6.0% $57.17 15.4% $3.44 3.0% 26
ENGH-T Enghouse Systems Limited 2.1% $33.92 -26.0% $0.72 16.3% 15
FNV-N Franco Nevada 0.9% $139.02 2.1% $1.28 10.3% 14
FTS-T Fortis 3.3% $64.28 6.3% $2.14 2.9% 48
IFC-T Intact Financial 2.3% $176.81 8.0% $4.00 17.6% 17
L-T Loblaws 1.4% $111.18 8.2% $1.54 12.4% 10
MGA-N Magna 2.9% $61.47 -24.7% $1.80 4.7% 12
MRU-T Metro 1.6% $66.98 -0.1% $1.10 12.2% 27
RY-T Royal Bank of Canada 3.8% $127.25 -7.0% $4.80 11.1% 11
SJ-T Stella-Jones Inc. 2.3% $35.00 -14.0% $0.80 11.1% 17
STN-T Stantec Inc. 1.2% $56.99 -18.8% $0.71 6.8% 10
TD-T TD Bank 3.9% $92.10 -7.3% $3.56 12.7% 11
TFII-N TFI International 1.4% $79.33 -28.4% $1.08 12.5% 11
TIH-T Toromont Industries 1.4% $108.61 -4.5% $1.52 15.2% 32
TRP-T TC Energy Corp. 4.9% $73.36 22.8% $3.57 4.4% 21
T-T Telus 4.3% $31.10 4.5% $1.33 6.2% 18
WCN-N Waste Connections 0.7% $124.58 -7.1% $0.92 8.9% 12
Averages 2.8% -2.6% 10.1% 18

MP Market Review – May 13, 2022

Last updated by BM on May 16, 2022

“We measure our success by the long-term progress of the companies rather than the month-by-month movements of their stocks”. Warren Buffett

Having a process that pays you to wait is what we like most about our dividend growth investing (DGI) strategy. Participating or even watching what happened in the US stock market last week can conjure up a lot of different emotions. The Nasdaq is now down -30% YTD!

When we were first introduced to DGI, we wondered how the strategy performed in down markets so we did some backtests. Amazingly, the strategy performed much better than the indexes and bounced back faster. One of the reasons we track a list of stocks on the blog is so you can see for yourself all of the benefits of a portfolio of DGI stocks with a record of dividend growth. Less volatility is one of the pluses. While many stocks were heading south last week, YTD price gains on ‘The List’ as a whole, barely moved and two of the stocks on ‘The List’ increased their dividends. Our income is now up over 10% from 2021 with more increases to come.

We wrapped up our Q1 2022 earnings releases last week. Q2 2022, we are thinking, won’t be as rosy as last year’s comparables and will be difficult to beat with the economy slowing.

For subscribers of the blog, we are excited about adding to our model portfolio as pessimism grows. Click on the Subscribe menu item to get started.

Performance of ‘The List’ 

Last week, ‘The List’ was down slightly with a minus -2.6% YTD price return (capital). Dividend growth of ‘The List’ grew again, now up double digits on the year at 10.1%, demonstrating the rise in our income over the last year. 

The best performers last week on ‘The List’ were CCL Industries (CCL-B-T), up 6.8%; Alimentation Couche-Tard Inc. (ATD-T), up 5.5%; and Canadian Tire Corp. (CTC-A-T), up 3.5%. 

Franco Nevada (FNV-N) was the worst performer last week, down -11.0%.

Recent News

TD’s high-frequency activity indicators screaming economic ‘slowdown’ across the board

“The pullback in North American equities is essentially driven by a phase of acute P/E compression. We cannot rule out further P/E damage, but we believe the current compression phase is well past its midpoint … We believe that if equities were to suffer another leg down, it will have to come mainly from the earnings side.

We wrote in earlier posts about the ‘excitement factor’ coming into this year. P/E multiples were stretched for many of the stocks on ‘The List’ leaving very few that were in our ‘sensible price’ range. Things have changed a bit now. With Q1 earnings reports behind us, it was good to see many of our fine dividend growers continuing to do well on the earnings side. Dividend increases are paid from growing earnings.

Jack Bogle’s expected return formula:

Future Market Returns = Dividend Yield + Earnings Growth +/- Change in P/E Ratio

Bill Gates cashes out over $645-million from this large-cap dividend stock

Canadian National Railway (CNR-T)

“Between May 2-6, Bill Gates, with an ownership position exceeding 10 per cent, sold a total of 4,235,782 shares for two accounts at an average price per share of approximately $152.40, leaving 12,077,098 shares in one account (Bill & Melinda Gates Foundation Trust) and 63,523,470 shares in different account (Cascade Investment LLC). Proceeds from the sales totaled over $645-million, excluding commission charges.”

We saw CNR’s valuation a bit stretched coming into 2022 so we trimmed our position. With the economy slowing and now a major shareholder trimming as well, we may get an opportunity soon to grow our position size again.

Dividend Increases

There were two companies on ‘The List’ that announced a dividend increase last week.

Canadian Tire (CTC-A-T) on Thursday said it increased its 2022 quarterly dividend from $1.30 to $1.625 per share, payable September 1, 2022, to shareholders of record on July 31, 2022.

This represents a dividend increase of 25%, marking the 12th straight year of dividend growth for this quality retailer.

Algonquin Power & Utilities (AQN-N) on Thursday said it increased its 2022 quarterly dividend from $.1706 to $.1808 per share, payable July 15, 2022, to shareholders of record on June 30, 2022.

This represents a dividend increase of 6%, marking the 12th straight year of dividend growth for this quality utility.

Earnings Releases

Last week was a busy week with seven companies on ‘The List’ reporting their Q1 Fiscal 2022 earnings. Let’s get the ball rolling with Intact Financial. 

Intact Financial (IFC-T)

Charles Brindamour, Chief Executive Officer, said:

“We continued to deliver solid results in Q1-2022 and made significant headway in integrating RSA. Our people are collaborating well together, sharing expertise and working to ensure a seamless transition for customers. We have also taken actions to optimize our UK&I footprint and focus our efforts to drive outperformance. Subsequent to quarter end, we announced the sale of RSA’s Middle East business and closed the sale of Codan Denmark. Our robust balance sheet, strong book of business and industry leading talent put us on strong footing to support our customers through this volatile time and capture opportunities as they arise.”

Highlights:

  • Net operating income per share increased 13% to $2.70, driven by accretion from RSA and growth in distribution income 
  • Operating DPW1 grew 86% in the quarter driven by the RSA acquisition and 8% organic growth, led by commercial lines
  • Operating combined ratio was a solid 91.7%, but 2.4 points higher than last year due to elevated catastrophe losses
  • EPS of $2.53 in the quarter reflected solid operating results but declined from the prior-year period, which included a large investment gain
  • OROE of 16.6% and ROE of 14.9%, with BVPS growth of 32% and $2.6 billion total capital margin
  • RSA integration progressing well and delivered 12% accretion to NOIPS in the quarter

Outlook:

  • Canadian industry profitability was strong in 2021, helped in part by largely hard market conditions and favourable prior year claims development. Over the next twelve months, we expect firm-to-hard insurance market conditions to continue, supported by high prepandemic combined ratios, inflation, climate change and the still relatively low interest rate environment.
  • In Canada personal lines, we expect firm market conditions to continue in property and expect auto to return to low-to-mid single-digit growth as driving patterns return to pre-pandemic norms.
  • In commercial lines in both US and Canada, hard market conditions are expected to continue.
  • In the UK&I, hard market conditions are expected to continue across commercial lines. In personal lines, near term industry growth remains uncertain as companies navigate the recently introduced pricing reforms. 

See full Earnings Release here

The big news for IFC-T in 2021 was the RSA acquisition. It appears the acquisition was a good one… “RSA contributed approximately 12% to NOIPS for the ten-month period since closing. Given the overall strength of Intact’s results, double-digit accretion is evidence of the quality of the acquired businesses.”

Intact Financial seems to be humming along with two dividend increases to start the year and a positive price return YTD.

 

Stella Jones (SJ-T) 

“With 2022 underway, we are pleased to report first quarter results that delivered on our expectations,” stated Éric Vachon, President and CEO of Stella-Jones.“ Sales increased quarter-over-quarter primarily due to strong organic growth in our infrastructure-related businesses and contributions from the recent Cahaba acquisitions. This growth was largely offset by lower residential lumber sales which, coupled with increasing input costs, pressured our margins. While contractual price adjustments are being implemented to cover escalating costs across the industry supply chain, we anticipate a certain degree of lag until the cost environment stabilizes.”

“In terms of market dynamics, customer demand for utility poles remains robust, based on planned infrastructure investments as well as ongoing replacement programs by utility and telecommunication companies. The trend for railway ties is also positive for 2022, although we are experiencing longer than expected tightness in the market supply for untreated ties. Residential lumber sales in the first quarter were higher than expected, but the peak summer season will be more telling as to the overall performance of this business for the year. In short, we are laying the foundation to achieve our three-year strategic plan and our performance for the first quarter provides a good start,” concluded Mr. Vachon.

Highlights:

  • Sales of $651 million, up 4%
  • Strong organic sales growth in infrastructure-related businesses
  • EBITDA of $88 million, or a margin(1) of 13.5%
  • Net income reached $46 million, or $0.73 per share

Outlook:

“Stella-Jones’ sales are primarily to critical infrastructure-related businesses. While all product categories can be impacted by short-term fluctuations, the overall business is mostly based on replacement and maintenance-driven requirements, which are rooted in long-term planning. Corresponding to this longer-term horizon and to better reflect the expected sales run-rate for residential lumber and reduce the impact of commodity price volatility, the Company shifted its guidance to a three-year outlook in early 2022. Below are key highlights of the 2022-2024 outlook with a more comprehensive version, including management assumptions, available in the Company’s MD&A.”

Key Highlights:

  • Compound annual sales growth rate in the mid-single digit range from 2019 pre-pandemic levels to 2024;
  • EBITDA margin of approximately 15% for the 2022-2024 period;
  • Capital investment of $90 to $100 million to support the growing demand of its infrastructure-related customer base, in addition to the $50 to $60 million of annual capital expenditures;
  • Residential lumber sales expected to stabilize between 20-25% of total sales while infrastructure-related businesses expected to grow and represent 75-80% of total sales by 2024;
  • Anticipated returns to shareholders between $500 and $600 million during three-year outlook period;
  • Leverage ratio of 2.0x-2.5x between 2022-2024, but may temporarily exceed range to pursue acquisitions.

See full Earnings Release here

We highlighted the lengthened outlook period (3 years) after Q4 2021 earnings were announced as a sign of short term turbulence in SJ-T. Although the valuation is sensible, we would like to see one more quarter of earnings to be sure the estimates are heading in the right direction.

 

Stantec (STN-T)

“Stantec delivered solid first quarter earnings on the strength of 19.5% net revenue growth, and reaffirms its guidance for the full year. Every regional and business operating unit delivered organic net revenue growth1 and recent acquisitions generated double-digit growth. Backlog continues to grow, rising to a record $5.4 billion, with continued growing momentum in the US.

The organic growth we achieved in Q1 reflects our ability to capitalize on our sector’s strong market fundamentals that continue to be spurred by robust public infrastructure spending and increasing private investment,” said Gord Johnston, President and CEO. “We expect this favorable backdrop to drive accelerating growth as we continue to provide our clients with solutions to the largest and most complex problems of our time. These include the strengthening of local supply chain resilience by re-shoring domestic production, global food security, and climate change, sustainability, and the related energy transition.

I’m particularly pleased that as we continue to execute on our growth strategy, our leadership in sustainability is driving increasing revenues related to the UN Sustainability Development Goals (SDGs). In our recently released Sustainability Report, we disclosed that 53% of our 2021 gross revenues relate to the SDGs, up from 49% in 2020 and 45% in 2019, when we became the first firm in our space to provide this quantification.”

Highlights:

  • Net revenue increased 19.5% or $171.4 million compared to Q1 2021, reflecting 6.4% organic and 13.9% acquisition net revenue growth. All of Stantec’s regional and business operating units delivered organic growth, most notably in Global and in Environmental Services where organic growth was in the double-digits.
  • Project margin increased $100.7 million or 21.6% to $567.1 million as a result of higher net revenue, solid project execution, and shifts in project mix. As a percentage of net revenue, project margin increased 0.9% to 54.0% from 53.1%.
  • Adjusted EBITDA from continuing operations increased $23.1 million or 17.9% to $152.2 million. Adjusted EBITDA margin was 14.5% compared to 14.7% in Q1 2021 due to higher administrative and marketing expenses as a percentage of net revenue, largely related to business development efforts on major programs, increased discretionary spending, and investments in internal resources.
  • Net income decreased 12.0%, or $6.1 million, to $44.8 million, and diluted EPS from continuing operations decreased 13.0%, or $0.06, to $0.40, mainly due to higher administrative and marketing expenses, depreciation, amortization, and lower other income. Additions from recent acquisitions contributed to higher depreciation and amortization. These increases in expenses were partly offset by increased project margin and lower income tax expense.
  • Adjusted net income grew 21.9%, or $12.3 million, to $68.4 million, representing 6.5% of net revenue, and adjusted diluted EPS increased 22.0% to $0.61 from $0.50 in Q1 2021.
  • Contract backlog stands at $5.4 billion at March 31, 2022, a new record that reflects 6.8% organic growth from December 31, 2021. Like net revenues, organic backlog growth was achieved across all of Stantec’s regional and business operating units. US operations led with organic backlog growth of 9.8%. Infrastructure and Energy & Resources achieved double digit organic backlog growth, and Environmental Services’ backlog of $1.1 billion is a high-water mark for this business. Contract backlog represents approximately 14 months of work—an increase of one month from December 31, 2021.
  • Operating cash flows amounted to an inflow of $6.0 million compared to $55.7 million in the prior period. First quarter operating activities typically result in cash outflows due to a lower level of activity in the winter season and the timing of payment for Stantec’s short-term incentive program. Positive operating cash flow in Q1 2022 was driven by acquisitions completed in late 2021 and improved market conditions, offset by higher cash paid to employees, reflecting an increased workforce and a higher wage environment relative to Q1 2021.
  • Net debt to adjusted EBITDA (on a trailing twelve-month basis) at March 31, 2022 was 1.8x, remaining within Stantec’s internal target range of 1.0x to 2.0x.
  • Days sales outstanding  was 75 days, consistent with March 31, 2021 and December 31, 2021.
  • In Q1 2022, Stantec repurchased 460,657 common shares under its Normal Course Issuer Bid program at a cost of $28.6 million. From April 1 to May 11, 2022, Stantec repurchased a further 386,273 shares for $23.3 million.
  • On April 1, 2022, Stantec acquired Barton Willmore, the UK’s leading planning and design consultancy firm. This acquisition added approximately 300 team members across the UK providing services for both public and private clients across all development sectors, which strategically complements Stantec’s existing business in infrastructure.

Outlook:

“We are reaffirming our guidance as provided in the Outlook section of our 2021 Annual Report.

We expect net revenue growth between 18% to 22% and that organic net revenue growth will be in the mid to high single digits, supported by momentum from record-high US backlog and project opportunities arising from the US infrastructure stimulus bill, continued robust activities in Canada, and strong economic growth from continued demand and stimulus in infrastructure sectors in Global. Our ability to meet the growing demand for our services is dependent on our highly skilled workforce. While we are seeing increased competition for staff and a higher wage environment in key geographies, we believe we continue to be well positioned to retain and attract new employees on the strength of our reputation and people-centric corporate culture, and mitigate these effects on project margins. We continue to expect to deliver annual adjusted EBITDA margin in the range of 15.3% to 16.3% and adjusted net income to be at or above 7.5%.

Our Q1 2022 results are slightly below our annual targets but are in line with our expectations. The first quarter of the year typically has lower levels of activity and, this year, we are also impacted by the protracted ramp-up of US activities for projects awarded in the second half of 2021. We expect to be in the higher end of the range in the second half of 2022 as the year progresses and activities increase.”

See full Earnings Release here

With a backlog of projects in the billions, STN-N seems poised to grow their earnings in 2022 and beyond. The recent pullback in price could be present a buying opportunity soon.

 

Canadian Tire (CTC-A-T) 

“We delivered a strong first quarter against exceptional results in Q1 last year. Our growth in sales continues to be driven by our highly relevant, unique multi-category assortment across our banners. Comparable store sales were up significantly, with outstanding performances at SportChek, as more families returned to hockey and skiing, and at Mark’s, which achieved growth across all categories in both national and owned brands. Additionally, our Financial Services business saw growth in new accounts and receivables as Canadians spent more on travel and entertainment,” said Greg Hicks, President and CEO, Canadian Tire Corporation.

“As we execute on our Better Connected strategy, we are bolstering our omnichannel capabilities and enhancing the integration of our banners, brands and channels to create a better customer experience, an even stronger competitive position and continued long-term growth,” continued Hicks.

Highlights:

  • Q1 2022 marked a strong first quarter against exceptional results in Q1 2021; CTC’s expansive multi-category assortment drove strong topline growth across CTC retail banners
  • CTC is executing on its Better Connected strategy unveiled at the March 2022 Investor Day, bolstering omnichannel capabilities and enhancing integration across all banners, brands and channels for a better customer experience
  • Diluted EPS was up 23% to $3.03; normalized diluted EPS was $3.06, up 19% compared to the first quarter of 2021
  • Quarterly dividend to shareholders to increase 25% to $1.625 per share

See full Earnings Release here

Any company that announces a 25% dividend raise immediately catches my attention. We are digging a bit deeper on Canadian Tires fundamentals now. 

 

CCL Industries Inc. (CCL-B-T) 

Geoffrey T. Martin, President and Chief Executive Officer, commented, “I am pleased to report solid first quarter results despite rising inflationary cost pressures and many supply chain challenges. All segments posted strong organic sales growth, albeit heavily price driven to offset cost pressures, resulting in 10.8% consolidated organic growth and a 6.3% improvement in adjusted basic earnings to $0.85 per Class B share, excluding the impact of foreign currency translation.”

Highlights:

  • Per Class B share: $0.85 adjusted basic earnings up 3.7%; $0.84 basic earnings up 2.4%; currency translation negative $0.02 per share
  • Sales increased 12.8% on 10.8% organic growth and 4.5% acquisitions partially offset by 2.5% negative currency translation
  • Operating income improved 2.5%, with a 15.0% operating margin down 150 bps on mix and inflation

See full Earnings Release here

Coming off overvaluation in 2021 based on historical fundamentals, CCL-B-T is getting closer to our sensible price range now. With a starting yield of 1.6% and a dividend that grew 20% annually over the last ten years, it doesn’t take long for your growth yield to reach our target yield of 7%. Another good dividend grower on our radar.

 

Algonquin Power & Utilities (AQN-T) 

“We are pleased to announce that today our Board of Directors approved a 6% increase in our quarterly common share dividend, supported by solid operating results from the Company’s diversified and resilient business model,” said Arun Banskota, President and Chief Executive Officer of AQN. “We remain committed to delivering on the Company’s $12.4 billion capital plan from 2022 through 2026 to drive growth in earnings and cash flows which we expect will, in turn, support compelling returns for shareholders.”

Highlights:

  • Revenue of $735.7 million, an increase of 16% compared to the first quarter of 2021
  • Adjusted EBITDA1 of $330.6 million, an increase of 17% compared to the first quarter of 2021;
  • Adjusted Net Earnings1 of $141.3 million, an increase of 13% compared to the first quarter of 2021; and
  • Adjusted Net Earnings1 per share of $0.21, an increase of 5% compared to the first quarter of 2021.

See full Earnings Release here

The highest yielding utility in ‘The List’ at 4.8%, AQN-N is attractive to investors looking for income. Algonquin is the most sensibly priced of all the utilities on ‘The List’ but we find it’s financials difficult to dissect so we are on the sidelines here for now.

 

Emera (EMA-T) 

“Our regulated utilities performed well this quarter, particularly in Florida where robust economic and customer growth continue,” said Scott Balfour, President and CEO of Emera Inc. “We are proud of our track record of delivering growth through the energy transition but we recognize that there is significant work ahead to meet ambitious government climate targets in a way that manages costs for customers and does not sacrifice system reliability. Our proven strategy and progress to date positions us well to address this challenge, and to continue to deliver value and growth to our shareholders.”

Highlights:

  • Quarterly adjusted net income of $242 million is consistent with Q1 2021. Quarterly adjusted EPS was $0.92, a decrease of $0.04 from $0.96 in Q1 2021. Contribution from regulated utilities increased adjusted EPS $0.11 year-over-year largely driven by new rates at Tampa Electric and continued growth at People’s Gas (“PGS”). This was offset primarily by lower contributions from Emera Energy due to extreme market conditions in 2021 and by higher share count.
  • Quarterly reported net income increased by $89 million to $362 million compared to $273 million in Q1 2021 and quarterly reported EPS increased by $0.30 to $1.38 from $1.08 in Q1 2021 due to mark-to-market (“MTM”) gains.
  • On track to deploy close to $3 billion of capital investment in 2022 to advance Emera’s strategy, including our clean energy transition.

See full Earnings Release here

All of the utilities on ‘The List’ have performed well in this latest market drawdown. When investors are fearful they do tend to flock to the safety of utility stocks. EMA-T is a little too pricey right now for us to take a serious look.

 

Below is a snapshot of ‘The List’ from last Friday’s close. For a sortable version of ‘The List’, please click on The List menu item.

‘The List’ is not meant to be a template for investors to copy exactly. Rather, its purpose is to provide investment ideas and a real-time illustration of dividend growth investing in action. It is not a ‘Buy List’ nor does it reflect the composition or returns of our Magic Pants Wealth-Builder (CDN) Portfolio. It is only a starting point for our analysis and discussion.

The List (2022)
Last updated by BM on May 13, 2022

*Note: The following graph is wide, you can scroll to the right on your device to see more of the data.

SYMBOL COMPANY YLD PRICE YTD % DIV YTD % STREAK
AQN-N Algonquin Power & Utilities 5.0% $14.10 -1.7% $0.70 5.4% 11
ATD-T Alimentation Couche-Tard Inc. 0.8% $58.44 12.2% $0.44 18.1% 12
BCE-T Bell Canada 5.3% $68.35 3.7% $3.64 4.0% 13
BIP-N Brookfield Infrastructure Partners 3.6% $59.58 -2.5% $2.16 5.9% 14
CCL-B-T CCL Industries 1.6% $59.29 -12.5% $0.96 14.3% 20
CNR-T Canadian National Railway 2.1% $142.92 -7.7% $2.93 19.1% 26
CTC-A-T Canadian Tire 3.3% $175.64 -4.1% $5.85 24.5% 11
CU-T Canadian Utilities Limited 4.5% $39.14 6.9% $1.78 1.0% 50
DOL-T Dollarama Inc. 0.3% $71.44 12.7% $0.22 9.2% 11
EMA-T Emera 4.3% $61.66 -1.5% $2.65 2.9% 15
ENB-T Enbridge Inc. 6.1% $56.56 14.2% $3.44 3.0% 26
ENGH-T Enghouse Systems Limited 2.2% $32.58 -29.0% $0.72 16.3% 15
FNV-N Franco Nevada 0.9% $135.68 -0.3% $1.28 10.3% 14
FTS-T Fortis 3.4% $62.99 4.2% $2.14 2.9% 48
IFC-T Intact Financial 2.3% $176.64 7.9% $4.00 17.6% 17
L-T Loblaws 1.3% $114.29 11.3% $1.54 12.4% 10
MGA-N Magna 3.0% $60.56 -25.8% $1.80 4.7% 12
MRU-T Metro 1.6% $69.70 4.0% $1.10 12.2% 27
RY-T Royal Bank of Canada 3.8% $126.62 -7.5% $4.80 11.1% 11
SJ-T Stella-Jones Inc. 2.3% $34.87 -14.3% $0.80 11.1% 17
STN-T Stantec Inc. 1.3% $54.50 -22.4% $0.71 6.8% 10
TD-T TD Bank 3.9% $91.92 -7.5% $3.56 12.7% 11
TFII-N TFI International 1.3% $80.83 -27.0% $1.08 12.5% 11
TIH-T Toromont Industries 1.4% $111.30 -2.1% $1.52 15.2% 32
TRP-T TC Energy Corp. 5.0% $71.55 19.8% $3.57 4.4% 21
T-T Telus 4.2% $31.35 5.3% $1.33 6.2% 18
WCN-N Waste Connections 0.7% $125.93 -6.1% $0.92 8.9% 12
Averages 2.8% -2.6% 10.1% 18

MP Market Review – May 6, 2022

Last updated by BM on May 9, 2022

“Basically, price fluctuations have only one significant meaning for the true investor. They provide an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal. At other times he will do better if he forgets about the stock market and pays attention to his dividend returns and to the operating results of his companies.” Benjamin Graham, Intelligent Investor C-8

Buying wisely is part of our process. The Canadian stock market is faring much better than the US market. I did notice however that a few companies on ‘The List’ are starting to retreat off their 2021 highs. The timing couldn’t be better to start a DGI portfolio.

Check out our Magic Pants Wealth-Builder Model Portfolio (CDN) business plan in the ‘Top Posts’ menu  and then subscribe to the blog to get started.

Performance of ‘The List’

Last week, ‘The List’ was down with a minus -2.1% YTD price return (capital). With two more announcements, dividend growth of ‘The List’ increased to 9.5% YTD, demonstrating the rise in income of our good dividend growers over the last year.

The best performers last week on ‘The List’ were TC Energy (TRP-T), up 5.1%; TFI International (TFII-T), up 4.4%; and Enbridge Inc. (ENB-T), up 4.3%.

Enghouse Systems Limited (ENGH-T) was the worst performer last week, down -8.9%.

Recent News

Why this pipeline stock deserves a little more love

“We all want the world to get off fossil fuels as fast as possible, but the reality is that the transition to clean energy will take many years.”

When we started buying TC Energy (TRP-T) in 2020 the news was very negative when it came to pipelines. A quick look at the fundamentals and the reality that our governements were not building any more pipelines gave us the confidence to take our position size on this core dividend growth stock higher. Fast forward a couple of years and the narrative is now changing. Pipelines are now being viewed as part of the solution in our transition to greener energy, instead of the problem.

Canadian telecom stocks hold up well despite rising interest rates

The author debates whether high yield stocks like the Canadian telecoms will lose their shine in a rising interest rate environment where investors turn their attention to fixed income securities. The biggest difference between bonds and dividend growth stocks is that our yield grows over time and the bond yield stays the same. I’ll take a dividend growth stock every time.

There are seven companies on ‘The List’ due to report earnings this week.

Intact Financial (IFC-T) will release its first-quarter 2022 results on Tuesday, May 10, 2022, after markets close.

Stella Jones (SJ-T) will release its first-quarter 2022 results on Wednesday, May 11, 2002, before markets open.

Stantec (STN-T) will release its first-quarter 2022 results on Thursday, May 12, 2022, before markets open.

Canadian Tire (CTC-A-T) will release its first-quarter 2022 results on Thursday, May 12, 2022, before markets open.

CCL Industries Inc. (CCL-B-T) will release its first-quarter 2022 results on Thursday, May 12, 2022, before markets open.

Algonquin Power & Utilities (AQN-T) will release its first-quarter 2022 results on Thursday, May 12, 2022, after markets close.

Emera (EMA-T) will release its first-quarter 2022 results on Thursday, May 12, 2022, after markets close.

Dividend Increases

There were two companies on ‘The List’ that announced a dividend increase last week.

Loblaw (L-T) on Wednesday said it increased its 2022 quarterly dividend from $0.365 to $0.405 per share, payable July 1, 2022, to shareholders of record on Jun. 14, 2022.

This represents a dividend increase of 11%, marking the 11th straight year of dividend growth for this quality food retailer.

Telus (T-T) on Friday said it increased its 2022 quarterly dividend from $0.3274 to $0.3386 per share, payable July 4, 2022, to shareholders of record on Jun. 10, 2022.

This represents a dividend increase of 3.4%, it’s second this year, marking the 19th straight year of dividend growth for this quality telco.

Earnings Releases

Last week was a busy week with eight companies on ‘The List’ reporting their Q1 Fiscal 2022 earnings. Let’s get the ball rolling with Waste Connections.

Waste Connections (WCN-N)

“We are extremely pleased by our strong start to the year, with record solid waste pricing growth driving underlying margin expansion in spite of inflationary pressures. Our 50 basis points year-over-year decline in adjusted EBITDA margin in the quarter included 90 basis points combined margin impact, as expected, from $10 million of COVID-related frontline support in January and acquisitions completed since the prior year period. Looking ahead, further sequential improvement in solid waste pricing growth, increasing E&P waste activity and strong operational execution should continue to differentiate our performance,” said Worthing F. Jackman, President and Chief Executive Officer. “Moreover, adjusted free cash flow generation of over $320 million, or 19.5% of revenue in the period, positions us to meet or exceed our full year adjusted free cash flow outlook of $1.150 billion.”

Mr. Jackman added, “The elevated cadence of solid waste acquisition activity has continued, with approximately $175 million in annualized revenues closed year to date, confirming our expectations for another outsized year of such activity, for which we remain well-positioned.”

Highlights:

  • Solid waste pricing growth of 7.1% drives underlying margin expansion and better than expected Q1 results
  • Revenue of $1.646 billion, up 17.9%
  • Net income of $180.3 million, and adjusted EBITDA of $502.1 million, or 30.5% of revenue and up 15.9%
  • Net income of $0.69 per share, and adjusted net income of $0.82 per share, up 17.1%
  • Net cash provided by operating activities of $440.9 million and adjusted free cash flow of $320.4 million, or 19.5% of revenue and up 10.6% year over year
  • Completes acquisitions with approximately $175 million of total annualized revenue

See full Earnings Release here

Waste Connections has been one of the top performing Canadian dividend growth companies over the last decade. They are very good at allocating their capital and remain active on the mergers and acquisitions front. Another good quarter. Valuation seems a bit stretched at 37 P/E . Waiting patiently for a sensible price on this one. 

 

Brookfield Infrastructure Partners (BIP-N)

“The prevailing market environment continues to favorably impact our business and drive record results,” said Sam Pollock, Chief Executive Officer of Brookfield Infrastructure. “The combinat ion of elevated inflation, GDP-related volume increases, and strong commodity prices contributed to organic growth of 10% during the quarter. We continue to advance a sizeable pipeline of active investment opportunities and maintain a strong liquidity position to fund our growth.”

Highlights:

  • Brookfield Infrastructure reported net income of $70 million for the three-month period ended March 31, 2022 compared to $190 million in the prior year. Current year results benefited from the contribution associated with recent acquisitions and organic growth across our base business.
  • Funds from operations (FFO) for the first quarter totaled $493 million, increasing 14% relative to the comparable period and was the highest in our partnership’s history. All businesses had a strong quarter, with midstream growing the most.
  • Successfully invested approximately $750 million into two utility investments, including the take private of an Australian regulated utility business and the acquisition of an Australian smart metering business.
  • Announced an agreement to acquire Uniti Group Ltd. (Uniti) in a A$3.7 billion take private transaction through a 50/50 joint venture partnership with another infrastructure investor.
  • BIP announced that the Board of Directors of BIP has approved a three-for-two unit split of the BIP units.

See full Earnings Release here

Brookfield Infrastructure announced a three-for-two stock split. We like stock splits because it proves that there has been growth. BIP-N has the second highest historical growth yield from all the stocks on our list. At it’s current price, the stock appears fully valued.

Fortis Inc. (FTS-T)

“Our first quarter results reflect the stability of our transmission and distribution business,” said David Hutchens, President and Chief Executive Officer, Fortis. “With capital investments on track for 2022 and recent progress made on incremental growth opportunities at ITC, we remain confident in our growth outlook.”

“We are pleased to take the next step on our ESG journey by committing to a 2050 net-zero direct GHG emissions target, which builds on our mid-term target to reduce GHG emissions 75% by 2035,” said Mr. Hutchens. “The net-zero target and TCFD and climate assessment report issued in March align with our focus on operational excellence, sustainable growth and a clean energy future.”

Highlights:

  • First quarter net earnings of $350 million, or $0.74 per common share
  • Adjusted net earnings of $0.78 per common share, up from $0.77 in the first quarter of 2021
  • Capital expenditures of $1.0 billion in the first quarter; $4.0 billion annual capital plan on track
  • 2050 net-zero direct GHG emissions target announced, building on Fortis’ commitment to a clean energy future
  • First TCFD and Climate Assessment Report issued during the quarter
  • Notice of intent submitted with respect to Tucson Electric Power’s next general rate application to be filed in June 2022

Outlook:

The Corporation’s long-term outlook remains unchanged. Fortis continues to enhance shareholder value through the execution of its capital plan, the balance and strength of its diversified portfolio of utility businesses, and growth opportunities within and proximate to its service territories. While energy price volatility, global supply chain constraints and rising inflation are issues of potential concern that continue to evolve, including from the effects of the COVID-19 pandemic, war in Eastern Europe, economic sanctions and geopolitical tensions, the Corporation does not currently expect there to be a material impact on operations or financial results in 2022.

See full Earnings Release here

Dividend growth stocks don’t get much more consistent than Fortis (48 years of dividend growth). The only issue I have with FTS-T is it’s valuation. Investors tend to flock to utility companies in periods of uncertainty and we believe Fortis is benefiting from that at that moment.

Loblaws (L-T)

“Loblaw demonstrated consistent operating and financial results, reflecting the strength of its portfolio of businesses and the ability to provide service and value to meet the evolving needs of Canadians,” said Galen G. Weston, Chairman and President, Loblaw Companies Limited. “We have begun the year with momentum in our core retail businesses, a clear strategic agenda, and continued traction in our growth initiatives.”

Highlights:

  • Revenue was $12,262 million, an increase of $390 million, or 3.3%.
  • Retail segment sales were $12,045 million, an increase of $375 million, or 3.2%.
    • Food Retail (Loblaw) same-stores sales increased by 2.1%.
    • Drug Retail (Shoppers Drug Mart) same-store sales increased by 5.2%.
  • E-commerce sales decreased by 9.8% lapping growth of 133%.
  • Operating income was $738 million, an increase of $121 million, or 19.6%.
  • Adjusted EBITDA was $1,343 million, an increase of $125 million, or 10.3%.
  • Retail segment adjusted gross profit percentage was 31.1%, an increase of 80 basis points.
  • Net earnings available to common shareholders of the Company were $437 million, an increase of $124 million or 39.6%. Diluted net earnings per common share were $1.30, an increase of $0.40, or 44.4%.
  • Adjusted net earnings available to common shareholders of the Company were $459 million, an increase of $67 million, or 17.1%.
  • Adjusted diluted net earnings per common share were $1.36, an increase of $0.23 or 20.4%.
  • Repurchased for cancellation, 1.3 million common shares at a cost of $148 million and invested $186 million in capital expenditures. Retail segment free cash flow was $214 million.
  • The Company announced today the release of its 2021 Environmental, Social and Governance (“ESG”) Report.
  • Eleventh consecutive annual increase to the quarterly common share dividend from $0.365 per common share to $0.405 per common share, an increase of 11%.

Outlook:

Loblaw will continue to execute on retail excellence in its core grocery and pharmacy businesses while advancing its growth initiatives in 2022. In the third year of the pandemic, the Company’s businesses remain well placed to service the everyday needs of Canadians. However, the Company cannot predict the precise impacts of COVID-19 and the current industry volatility on its 2022 financial results. Loblaw anticipates that in the first half of 2022 sales will benefit from the continued impact of the pandemic and elevated industry-wide inflation. As societies and economies reopen and the Company starts to lap elevated 2021 inflationary prices and COVID-19 related pharmacy services, year on year revenue growth will be more challenged.

The Company continues to expect:

  • its Retail business to grow earnings faster than sales;
  • Earnings per Common Share growth in the low double digits, with higher growth in the first half of the year;
  • to invest approximately $1.4 billion in capital expenditures, net of proceeds from property disposals, reflecting incremental store and distribution network investments; and
  • to return capital to shareholders by allocating a significant portion of free cash flow to share repurchases.

See full Earnings Release here

Grocers have done well during the pandemic. Loblaw is more diversified than other grocers. We like that about L-T. The 11% dividend increase tells us that management is optimistic about the future. We also like the fact that the dividend growth rate is accelerating in recent years.

Franco Nevada (FNV-N)

“I am pleased to announce another strong quarter demonstrating our high margin business”, stated Paul Brink, President & CEO. “The portfolio benefited from strong precious metal, energy and iron ore prices. The Energy contribution was particularly strong, offset somewhat by lower precious metal deliveries. Total GEOs are on track to meet annual guidance. Our NSR and stream interests are inflation-proof and our G&A expenses are less than 3% of revenue. This allows revenue growth to translate directly into expanded earnings. Franco-Nevada is debt-free and is growing its cash balances. Our recent Asset Handbook highlighted good resource growth at our assets and we have a strong pipeline of precious metal opportunities.”

Highlights:

For Q1 2022, we earned $338.8 million in revenue, up 9.7% from Q1 2021. The growth was primarily driven by higher realized oil and gas prices from our Energy assets and revenue from our Vale Royalty.

These more than offset the decrease in Precious Metal revenue and resulted in 71.7% of our revenue being sourced from Precious Metal assets (55.4% gold, 12.1% silver, 4.2% PGM). Revenue was sourced 90.4% from the Americas (30.2% South America, 23.4% Central America & Mexico, 21.6% U.S. and 15.2% Canada).

Portfolio Additions:

Acquisition of Caserones Royalty: Subsequent to quarter-end, on April 14, 2022, we agreed to acquire an effective 0.4582% NSR royalty on JX Nippon Mining and Metals Group’s producing Caserones copper-molybdenum mine located in the Atacama Region of northern Chile for an aggregate purchase price of approximately $37.4 million. In connection with the royalty acquisition, we completed a $10.0 million private placement with EMX Royalty Corporation (“EMX”). EMX used the proceeds from the private placement to acquire an NSR on the Caserones mine on similar terms as Franco-Nevada.

Acquisition of Additional Castle Mountain Royalty: Subsequent to quarter-end, on May 2, 2022, we acquired an existing 2% NSR on gold and silver produced from the Pacific Clay claims, which comprise a portion of the JSLA pit of Equinox Gold’s Castle Mountain project in San Bernardino County, California, for $6.0 million. When combined with our 2.65% NSR on the broader Castle Mountain land position, we now have a 4.65% NSR on the Pacific Clay claims.

See full Earnings Release here

The growth this quarter primarily came from higher realized oil and gas prices from their Energy assets and revenue from thier Vale Royalty. We like how FNV-T is diversifying into oil and gas royalties.

Bell Canada (BCE-T)

“Bell’s Q1 results highlight our continued momentum from 2021 into this year, demonstrating that our accelerated fibre expansion and customer experience improvements continue to offer greater value to our growing base of customers and the communities we live in,” said Mirko Bibic, President and CEO of BCE and Bell Canada.

Bell’s solid performance across all segments shows that we have the right strategy in place, we’re consistently executing on that strategy and our products and services are resonating with our customers.

This is the first quarter since the start of the pandemic in which our consolidated financial results surpassed pre-COVID levels and I am very proud of the Bell team for their continued focus on operational excellence, and all that they’ve done over the past two years to deliver for our customers.”

Highlights:

  • Consolidated adjusted EBITDA growth of 6.4% on 4.2% higher service revenue
  • Net earnings of $934 million, up 36.0%, with net earnings attributable to common shareholders of $877 million, or $0.96 per common share, up 35.2%; adjusted net earnings of $811 million generated adjusted EPS of $0.89, up 14.1%
  • Leading wireless financial results with best quarterly organic service revenue growth in 11 years of 8.7%, 9.3% higher adjusted EBITDA and 5.1% increase in mobile phone blended ARPU2 ; 34,230 new net mobile phone postpaid subscribers added, up 4.0%
  • 26,024 retail Internet net activations, up 22.7%, driving 8% residential Internet revenue growth; IPTV net activations increased 14.6% to 12,260; 91% of Bell residential households with TV and Internet now on a pure fibre network
  • First major operator to offer 3 Gbps symmetrical Internet speeds, three times faster than speeds available with cable technology
  • On pace to deliver approximately 900,000 new fibre locations and mobile 5G to more than 80% of Canadians in 2022; 80% of planned broadband buildout program to be completed by year end
  • Media revenue up 15.7% on stronger year-over-year TV performance and 84% higher digital revenue , contributing to industry-best adjusted EBITDA growth of 45.5%
  • Strong financial position maintained with more than $2.8 billion of available liquidity at end of Q1, including $104 million in cash
  • Reconfirming all 2022 financial guidance targets

Outlook:

BCE confirmed its financial guidance targets for 2022, as provided on February 3, 2022.

For the full-year 2022, we expect growth in adjusted EBITDA, a reduction in contributions to

post-employment benefit plans and payments under other post-employment benefit plans, and

lower cash income taxes, will drive higher free cash flow.

During the first quarter of 2022, the unfavourable effects of the COVID-19 pandemic on our financial and operating performance continued to moderate due to our operational execution and easing of government restrictions during the quarter. However, due to uncertainties relating to the severity and duration of the COVID-19 pandemic and possible further resurgences in the number of COVID-19 cases, including as a result of the potential emergence of other variants, and various potential outcomes, it is difficult at this time to estimate the impacts of the COVID19 pandemic on our business or future financial results and related assumptions.

See full Earnings Release here

Bell Canada delivered the best quarterly organic wireless service revenue growth rate in 11 years and retail Internet and IPTV subscriber activations were up 20% over last year.  This was also the first quarter since the start of the pandemic in which financial results surpassed pre-COVID levels.

Telus (T-T)

“Our team once again achieved strong operational and financial results in the first quarter of 2022,” said Darren Entwistle, President and CEO. “TELUS’ ongoing execution excellence continues to be  haracterized by the consistent combination of industry-leading and profitable customer growth, yielding strong financial results across our business.”

Highlights:

  • Industry-leading total Mobile and Fixed customer growth of 148,000, representing the strongest first quarter on record, reflecting robust demand for our superior bundled offerings over world-leading broadband networks and leading customer loyalty results
  • Consolidated Revenue, Adjusted EBITDA, Net Income and Earnings Per Share growth of 6.4 per cent, 7.0 per cent, 21 per cent and 12 per cent, respectively, reflecting consistent execution excellence; strong Free Cash Flow growth of 29 per cent
  • Continued operating momentum in our high growth, technology-oriented verticals with strong double-digit Revenue growth across TELUS International, TELUS Health and TELUS Agriculture
  • Quarterly dividend increased to $0.3386 per share, up 7.1 per cent over the prior year, representing our twenty-second increase since 2011
  • Extending our industry-best Dividend Growth Program targeting 7 to 10 per cent annual growth for 2023 through 2025, supported by positive business outlook and accelerating Free Cash Flow growth

Outlook:

Reiterating our 2022 financial targets including Consolidated Operating Revenue and Adjusted EBITDA growth of 8 to 10 percent, and Free Cash Flow of $1 billion to $1.2 billion

See full Earnings Release here

TELUS announced another dividend raise and its intention to target ongoing semi-annual dividend increases, with the annual increase in the range of 7 to 10 per cent from 2023 through to the end of 2025. We like companies that have a dividend policy as part of their DNA.

Enbridge Inc. (ENB-T)

 Al Monaco, President and CEO commented on the following:

“It’s clear we are at an inflection point in global energy markets. Energy demand continues to grow, which combined with underinvestment in new supply, is driving energy shortages and higher prices. Now, more than ever, it’s evident that all forms of energy, conventional and low carbon, are needed to meet the growing demand while ensuring society has access to affordable, reliable, secure and cleaner energy. 

This global energy crisis further heightens the essential role that conventional energy will play for decades to come. But, we also need to meet our global emissions goals across the value chain and leverage existing infrastructure to accelerate investment in low-carbon energy.”

Highlights:

  • First quarter GAAP earnings of $1.9 billion or $0.95 per common share, compared with GAAP earnings of $1.9 billion or $0.94 per common share in 2021
  • Adjusted earnings of $1.7 billion or $0.84 per common share, compared with $1.6 billion or $0.81 per common share in 2021
  • Adjusted earnings before interest, income taxes and depreciation and amortization (EBITDA) of $4.1 billion, compared with $3.7 billion in 2021
  • Cash provided by operating activities of $2.9 billion, compared with $2.6 billion in 2021
  • Distributable cash flow (DCF) of $3.1 billion or $1.52 per common share, compared with $2.8 billion or $1.37 per common share in 2021
  • Reaffirmed 2022 full year guidance range for EBITDA of $15.0 billion to $15.6 billion and DCF per share of $5.20 to $5.50
  • Placed the 455-kilometre, $0.2 billion East-West Tie Transmission Line into service providing reliable, long-term electricity to Northwest Ontario
  • Sanctioned $0.3 billion expansion of the Panhandle Regional Transmission System to meet growing natural gas demand in Southern Ontario; operations to commence in late-2023
  • Announced an Open Season for up to a 400 MMcf/d expansion of the B.C. Pipeline System’s T-North section with a 2026 in-service date to meet increasing demand
  • Awarded the right to advance the Open Access Wabamun Carbon Hub designed to capture 4 million tonnes of CO2 emissions annually
  • Announced Letter of Intent with Humble Midstream LLC to develop blue hydrogen, ammonia and associated carbon capture infrastructure at the Enbridge Ingleside Energy Center near Corpus Christi, Texas on the U.S. Gulf Coast
  • Progressing construction of four French offshore renewable projects with combined gross power generation of approximately 1.5 gigawatts (0.3 GW net)
  • Advancing capital allocation priorities; on track to achieve Debt to EBITDA of 4.7x or lower by year-end and executed initial share repurchases during the first quarter

Outlook:

On track to achieve 2022 full-year EBITDA and DCF/s guidance

  • North American energy critical to meeting global demand
  • ENB well-positioned for organic growth
  • Growing FCF and financial strength provides capacity
  • Disciplined capital investment framework
  • ESG leadership a key differentiator

See full Earnings Release here

The pipelines continue to be our best performers in 2022. Both ENB-T and TRP-T are having market beating results. With no new pipelines being approved, we like these two going forward as well.

Below is a snapshot of ‘The List’ from last Friday’s close. For a sortable version of ‘The List’, please click on The List menu item.

‘The List’ is not meant to be a template for investors to copy exactly. Rather, its purpose is to provide investment ideas and a real-time illustration of dividend growth investing in action. It is not a ‘Buy List’ nor does it reflect the composition or returns of our Magic Pants Wealth-Builder (CDN) Portfolio. It is only a starting point for our analysis and discussion.

The List (2022)
Last updated by BM on May 6, 2022

*Note: The following graph is wide, you can scroll to the right on your device to see more of the data.

SYMBOL COMPANY YLD PRICE YTD % DIV YTD % STREAK
AQN-N Algonquin Power & Utilities 5.0% $13.78 -4.0% $0.68 2.3% 11
ATD-T Alimentation Couche-Tard Inc. 0.8% $55.21 6.0% $0.44 18.1% 12
BCE-T Bell Canada 5.3% $69.50 5.4% $3.68 5.1% 13
BIP-N Brookfield Infrastructure Partners 3.5% $61.22 0.2% $2.16 5.9% 14
CCL-B-T CCL Industries 1.7% $55.26 -18.5% $0.96 14.3% 20
CNR-T Canadian National Railway 2.0% $149.89 -3.2% $2.93 19.1% 26
CTC-A-T Canadian Tire 3.1% $169.45 -7.5% $5.20 10.6% 11
CU-T Canadian Utilities Limited 4.6% $38.82 6.0% $1.78 1.0% 50
DOL-T Dollarama Inc. 0.3% $70.54 11.2% $0.22 9.2% 11
EMA-T Emera 4.3% $62.11 -0.8% $2.65 2.9% 15
ENB-T Enbridge Inc. 5.9% $58.47 18.0% $3.44 3.0% 26
ENGH-T Enghouse Systems Limited 2.2% $32.91 -28.2% $0.72 16.3% 15
FNV-N Franco Nevada 0.9% $150.54 10.6% $1.28 10.3% 14
FTS-T Fortis 3.4% $62.93 4.1% $2.14 2.9% 48
IFC-T Intact Financial 2.3% $177.06 8.1% $4.00 17.6% 17
L-T Loblaws 1.4% $111.76 8.8% $1.54 12.4% 10
MGA-N Magna 3.0% $59.79 -26.7% $1.80 4.7% 12
MRU-T Metro 1.6% $68.97 2.9% $1.10 12.2% 27
RY-T Royal Bank of Canada 3.7% $129.59 -5.3% $4.80 11.1% 11
SJ-T Stella-Jones Inc. 2.3% $34.85 -14.3% $0.80 11.1% 17
STN-T Stantec Inc. 1.2% $58.27 -17.0% $0.71 6.8% 10
TD-T TD Bank 3.8% $92.97 -6.4% $3.56 12.7% 11
TFII-N TFI International 1.3% $84.04 -24.1% $1.08 12.5% 11
TIH-T Toromont Industries 1.4% $109.13 -4.0% $1.52 15.2% 32
TRP-T TC Energy Corp. 5.0% $71.43 19.6% $3.57 4.4% 21
T-T Telus 4.1% $32.28 8.5% $1.33 6.2% 18
WCN-N Waste Connections 0.7% $126.75 -5.5% $0.92 8.9% 12
Averages 2.8% -2.1% 9.5% 18

Using Growth Yield (YOC) To Build Powerful DGI Portfolios

Posted by BM on May 6, 2022

Yield on Cost, or as we prefer to define it, Growth Yield, is the one of the best ways to measure dividend growth investing success. We will show you how you can also use this metric to build a powerful DGI portfolio.

First, a couple of definitions:

  • Dividend Yield is the current annualized dividend divided by the current price of the stock
  • Growth Yield is the current annualized dividend divided by the original cost basis of the stock

In other words, Dividend Yield is your current yield, and Growth Yield is the yield you are now making, on dividends alone, from your original investment sometime in the past.

Using both a historical and estimated Growth Yield, we have found that you can reliably construct powerful DGI portfolios.

As mentioned before, dividend growth investing is a risk reduction strategy that leads us to the highest quality companies. The Growth Yield metric is one way to get there.

First, we need to decide on the minimum Growth Yield we would like to achieve after ten years of holding the stock. This is a personal decision based on your own objectives. We like a minimum average Growth Yield of 7% in our Magic Pants Wealth-Builder Portfolios.

The first thing we do is look at the company’s historical record and how it has performed over the last decade, keeping our minimum Growth Yield in mind. The historical Growth Yield calculation is an easy one. Start with the current annualized dividend and divide it by the stock price ten years ago. If the Growth Yield is greater than 7% you now have a candidate for further analysis.

Next, we estimate if this type of dividend growth is likely to continue. Estimating Growth Yield ten years out can be calculated by taking the current (or starting) dividend yield and multiply it by the average annual forward dividend growth rate to the power of the period in question (5 for the next five years, 10 for the next ten years). We will use ten years for our demonstration.

Forward dividend growth rates can be a little trickier. Some companies, like Telus (T-T) for example, publish their estimated dividend growth rates in their earnings reports.

“Telus intends to target ongoing semi-annual dividend increases, with the annual increase in the range of 7-10% from 2023 through to the end of 2025.” May 6, 2022, Q1 Earnings Report

If company estimates are not available, you can always look at the recent past (1-5 yrs) and estimate a forward growth rate.

For now, we will use 7%, as it is in line with their guidance and Telus’ five-year average dividend growth rate.

Historical Growth Yield calculation for Telus (T-T)

Current Dividend (2021) / Price Jan. 1, 2012 = Historical Growth Yield

$1.26/$14.32 = 8.8%

Estimated Growth Yield calculation for Telus (T-T)

Current Yield (Jan. 1, 2022) * Average Annual Forward Dividend Growth Rate ^ Period = Estimated Growth Yield

4.2% * 1.07 ^ 10 = 8.2%

In this case, Telus meets both our minimum Growth Yields (historical and estimated).

Purchasing companies at a ‘sensible price’ is still essential in our process, and you should not blindly add positions based on Growth Yield alone. Valuation at the time of purchase will improve your future performance.

Assembling a portfolio with an average Growth Yield of 7% or better (some lower and some higher) is achievable from companies on ‘The List’. Conduct your own analysis with all the stocks on ‘The List’, establish a ‘sensible price’ to enter a position, determine your position sizes based on quality ratings, and start building a powerful DGI portfolio.

For those who need more coaching, subscribe to the blog and build your portfolio alongside ours, including DGI Alerts when we buy/sell our quality dividend growers.

MP Market Review – April 29, 2022

Last updated by BM on April 29, 2022

“From 2000 to 2009, a period often referred to as the “lost decade,” the S&P 500 Index produced a negative return. Largely as a result of the bursting of the dot-com bubble in March 2000, stock investors once again turned to fundamentals such as P/E ratios and dividend yields.” Hartford Funds

Dividends Contribution By Decade

We couldn’t help but notice the uptick in the number of articles published on dividend and dividend growth investing (DGI) over the past few weeks. The tech stocks are officially in crash mode, and the likelihood of a further market pullback increases with each interest rate hike. Investors are looking for alternative strategies to weather the storm.

The ‘lost decade’ (2000-2009) first piqued our interest in DGI. As the quote at the top demonstrates, many mutual fund and index investors lost money over the course of that decade. We were in that camp. In the 1970s, which was our last period of high inflation, dividends accounted for 73% of the market’s total return.

Performance of ‘The List’

Last week, ‘The List’ was down with a minus -0.9% YTD price return (capital). Dividend growth of ‘The List’ remains at 9.2% YTD, demonstrating the rise in income over the last year.

The best performers last week on ‘The List’ were Enghouse Systems Limited (ENGH-T), up 2.0%; Metro (MRU-T), up 1.1%; and Alimentation Couche-Tard Inc. (ATD-T), up .9%.

TC Energy Corp. (TRP-T) was the worst performer last week, down -6.3%.

Recent News

Market Chatter: Alimentation Couche-Tard, EG Group in Deal Talks

“Two of the world’s biggest convenience-store chains are discussing a deal that would combine BP gas stations, roadside Starbucks, Circle K minimarts and Cumberland Farms grocery stores among a handful of other retail brands, The Wall Street Journal is reporting Friday.

It reported Alimentation Couche-Tard Inc. (ATD-T), which runs 7,000 convenience stores in the U.S. and as many abroad, and British retailer EG Group have traded proposals in recent weeks that would value EG at roughly US$16 billion or more including debt, people familiar with the matter said. The talks have so far failed to produce a deal and they may not lead to one, some of the people said.”

Alimentation Couche-Tard (ATD-T) is rumored to be involved in a few deals as of late. If the price is right, it could be a catalyst to the stock, or like their failed takeover bid for Carrefour last year, it could be an excellent time to load up on this quality dividend grower as we did in January 2021. Having a process prevents you from chasing all the market chatter. We have a sensible price in mind for (ATD-T) regardless of the short-term narrative.

Five reasons dividends are an investor’s best friend was an article in the Globe & Mail we read over the weekend.

The third reason will probably resonate with most people. Dividends keep you out of trouble. Buying quality companies with a growing dividend seems to have a built-in floor for stock prices. A rising yield attracts buyers, which limits the price downside. Quality dividend growth stocks have historically fared much better in bear markets than non-dividend paying stocks. Another reason dividend growth stocks keep you out of trouble is because you don’t ever have to sell them to raise income. The dividends take care of that.

Eight companies on ‘The List’ are due to report earnings this week.

Waste Connections (WCN-N) will release its first-quarter 2022 results on Tuesday, May 3, 2022, after markets close.

Brookfield Infrastructure Partners (BIP-N) will release its first-quarter 2022 results on Wednesday, May 4, 2002, before markets open.

Fortis Inc. (FTS-T) will release its first-quarter 2022 results on Wednesday, May 4, 2022, before markets open.

Loblaws (L-T) will release its first-quarter 2022 results on Wednesday, May 4, 2022, before markets open.

Franco Nevada (FNV-N) will release its first-quarter 2022 results on Wednesday, May 4, 2022, after markets close.

Bell Canada (BCE-T) will release its first-quarter 2022 results on Thursday, May 5, 2022, before markets open.

Telus (T-T) will release its first-quarter 2022 results on Friday, May 6, 2022, before markets open.

Enbridge Inc. (ENB-T) will release its first-quarter 2022 results on Friday, May 6, 2022, before markets open.

Dividend Increases

There were no companies on ‘The List’ that announced a dividend increase last week.

Earnings Releases

Last week was a busy week with six companies on ‘The List’ reporting their Q1 Fiscal 2022 earnings. Let’s get the ball rolling with (CNR-T).

Canadian National Railway (CNR-T)

“CN has an incredible tri-coastal network, the best on the continent. Our team of experienced railroaders demonstrated resilience in the first quarter, managing through severe winter weather conditions and supply chain disruptions to deliver solid results. I am encouraged by the cadence that we developed at the end of the quarter as we lifted out of winter operations. Looking ahead, our immediate focus is on restoring CN’s network to its full capacity and running a scheduled railroad with an emphasis on velocity. I am confident that we will have a strong year and deliver on our 2022 financial outlook.”

– Tracy Robinson, President and Chief Executive Officer, CN

Highlights:

  • Revenues of C$3,708 million, an increase of C$173 million or 5%.
  • Operating income of C$1,227 million, a decrease of 8%, and adjusted operating income of C$1,237 million, an increase of 4%.
  • Diluted EPS of C$1.31, a decrease of 4%, and adjusted diluted EPS of C$1.32, an increase of 7%.
  • Operating ratio, defined as operating expenses as a percentage of revenues, of 66.9%, an increase of 4.4-points, and adjusted operating ratio of 66.6%, an increase of 0.3-points.
  • Free cash flow for the first three months of 2022 was C$571 million compared to C$539 million for the same period in 2021.
  • Injury frequency rate improved by 18% and the accident rate increased by 93%.
  • Car velocity (car miles per day) decreased by 12%.
  • Fuel efficiency remained flat at 0.910 US gallons of locomotive fuel consumed per 1,000 gross ton miles (GTMs).

Outlook:

Due to challenging operating conditions in the first quarter as well as worldwide economic uncertainty, CN now expects to deliver approximately 15-20% adjusted diluted EPS growth (compared to its January 25, 2022 target of 20%). CN is now targeting an operating ratio below 60% for 2022 (compared to its January 25, 2022 target of approximately 57%) as well as approximately 15% of ROIC. CN is also now targeting free cash flow in the range of C$3.7 billion – C$4.0 billion in 2022 (compared to its January 25, 2022 target of approximately C$4.0 billion).

See full Earnings Release here

After reading Hunter Harrison’s book, Railroader, I learned a lot about operating ratios. According to Harrison, it is the gold standard in evaluating a railroad’s efficiency. In its earnings release, CNR-T has backed off its target of 57% and lowered its free cash flow range. The stock was a little pricey for us back at the beginning of 2022 but according to its historical dividend yield, it seems to be aligning itself better now.

 

Canadian Utilities (CU-T)

“Canadian Utilities achieved adjusted earnings of $219 million or $0.81 per share in the first quarter of 2022. This is $28 million or $0.11 per share higher than the first quarter of last year. The $28 million year-over-year increase in the first quarter earnings was a result of cost efficiencies, rate-based growth, and the timing of expenditures in our Alberta utilities, along with stronger contributions from our LUMA Energy investment, and our first full quarter of earnings from the Alberta Hub natural gas storage facility, which was acquired in December of 2021.

While our business overall performed very well in the first quarter of this year, this growth in year-over year earnings was primarily driven by the exceptional performance of our Alberta-based distribution utilities, the gas distribution utility in particular.”

Brian Shkrobot, EVP & CFO, Canadian Utilities

Highlights:

  • On April 14, 2022, a joint settlement agreement was filed with the AUC with respect to the AUC enforcement proceeding with an agreed administrative penalty of $31 million. Customers were never impacted as these costs were not included in customer rates and the administrative penalty and excluded project costs will not be recovered from customers.
  • Invested $263 million in capital projects of which 83 per cent was invested in regulated utilities and 17 per cent mainly in Energy Infrastructure.
  • Entered into a share purchase agreement with Denendeh Investments Incorporated (DII) to increase DII’s ownership interest from 14 per cent to 50 per cent in Northland Utilities Enterprises Ltd. (NUE). NUE is an electric utility company operating in the Northwest Territories, Canada and a subsidiary of ATCO Electric Ltd. The transaction results in ATCO Electric Ltd. and DII each having a 50 per cent ownership interest in NUE and highlights our continued commitment to foster community ownership and self-sustaining economic development.
  • Closed the transaction to transfer a 30-km segment of the Pioneer Natural Gas Pipeline to Nova Gas Transmission Ltd. for $63 million in the Natural Gas Transmission business on February 25, 2022.
  • Announced a 15-year power purchase agreement with Microsoft Corporation to purchase all renewable energy generated by ATCO’s Deerfoot solar project in Calgary, Alberta. Once operational, the Deerfoot solar project will be one of the largest solar installations in a major urban centre in Western Canada, at 37-MW.
  • On April 14, 2022, Canadian Utilities declared a second quarter dividend of 44.42 cents per share or $1.78 per Class A non-voting and Class B common share on an annualized basis.

See full Earnings Release here

(CU-T) is one of those companies that you can sleep well at night owning. It has the longest dividend growth streak in Canada (50 years)! It has an excellent starting yield but slow growth (less than 1% annually over the past ten years). The business seems to be doing well, but we like a few of the other utilities on ‘The List’ with more growth.

Always remember Jack Bogle’s formula for estimating returns, Future Market Returns = Dividend Yield + Earnings Growth +/- Change in P/E Ratio.

 

TFI International (TFII-N)

“The year is off to a strong start for TFI International as we capitalize on favorable trends across our highly diverse end markets and our own internal opportunities to drive synergies and operational enhancements,” said Alain Bédard, Chairman, President and Chief Executive Officer. “During the first quarter, we more than doubled both our operating income and adjusted diluted EPS, with favorable contributions from all four of our business segments thanks to the focus and dedication of our talented team across North America. Through adherence to TFI’s longstanding operating principles that emphasize continual focus on the customer, an asset-light approach, and ‘freight that fits’, we are confident in our ability to navigate uncertain economic times, while also executing on multiple opportunities to streamline operations and drive further synergies related to the ongoing successful integration of TForce Freight. During the quarter we also further bolstered our very solid balance sheet, even while investing in our fleet and returning capital to shareholders, which furthers our financial flexibility and opportunities to enhance long-term growth through attractive acquisitions.”

Highlights:

  • First quarter operating income of $219.8 million increased 116% from $101.7 million in the same quarter prior year
  • First quarter net income of $147.7 million increased 121% compared to $66.9 million in Q1 2021, while adjusted net income1 of $157.6 million increased 114% compared to $73.6 million in Q1 2021
  • First quarter diluted earnings per share (diluted “EPS”) of $1.57 increased 124% compared to $0.70 in Q1 2021, while adjusted diluted EPS1 of $1.68 increased 118% compared to $0.77 in Q1

See full Earnings Release here

(TFII-N) has been a high growth company recently and is therefore a little bit more difficult to value than some of our other quality dividend growers. We wrote about (TFII-N) in our Portfolio Review-April (2022) article and not much has changed since then. We liked the earnings report but are cautious in reading too much into the numbers as the YoY comparisons are distorted due to the UPS Freight acquisition (now TForce Freight) in April of last year. The key to initiating a position here will be whether we believe there is enough of a ‘margin of safety’ to withstand the inevitable slow down in the economy over the next few quarters.

 

Magna International (MGA-N)  

“First quarter results came in ahead of our expectations, with our sales again outpacing global light vehicle production. However, due to current geopolitical events and COVID-19 lockdowns in China, industry estimates for vehicle production have been lowered, and we are facing inflation and commodity headwinds. While these factors negatively impact our outlook, we remain committed to managing through short term industry adversity and investing for our future.”

– Swamy Kotagiri, Magna’s Chief Executive Officer

Highlights:

  • Global light vehicle production was down 7%, largely due to 16% decrease in Europe
  • Sales of $9.6 billion decreased 5%
  • Diluted earnings per share and adjusted diluted earnings per share decreased 40% and 31%, respectively
  • Reduced 2022 outlook to reflect expected lower light vehicle production assumptions and an increase in production input costs

Outlook:

Magna’s operations in Russia remain substantially idled. These operations currently consist of six facilities and approximately 2,000 employees which generated sales of $371 million in 2021, substantively to Hyundai and Volkswagen. As at March 31, 2022, our consolidated balance sheet included $440 million related to our investment in Russia, including $160 million of net assets and $280 million of deferred cumulative translation losses in accumulated other comprehensive loss. In addition to the risk factors discussed in our Annual Information Form and Annual Report on Form 40-F in respect of the year ended December 31, 2021, the continuing conflict is creating or exacerbating a broad range of risks, including with respect to:

  • global economic growth;
  • global vehicle production volumes;
  • inflationary pressures, including in energy, commodities, and transportation/logistics;
  • energy security in Western Europe, particularly in Germany and Austria where we have significant operations; and
  • supply chain fragility.

A material deterioration in any of the foregoing could have a material adverse effect on our business and results of operations.

Additionally, the sanctions regime imposed by G7 and other countries includes a range of measures which reduce the ability of companies from such sanctioning countries to fund or provide products or services to or through their Russian operations. The combination of continuing suspensions of production by western OEMs in Russia, as well as our own continuing idling of operations, may result in material charges to income for amounts recorded on our consolidated balance sheet related to our investment in Russia.

See full Earnings Release here

(MGA-N) reported earnings in line with what we expected. The problems in the short term for Magna are well documented. Unless there is a quick fix to the items mentioned in their Q1 Outlook section above, we are not expecting much out of Magna until Q1 2023. However, we like the long-term potential and would be willing to grow our position on further price weakness.

 

TC Energy Corp. (TRP-T)

“During the first three months of 2022, our diversified and opportunity-rich portfolio of essential energy infrastructure assets continued to deliver strong results and reliably meet North America’s growing demand for energy. Comparable earnings of $1.12 per common share and comparable funds generated from operations of $1.9 billion reflect the solid performance of our assets and the utility-like nature of our business together with contributions from projects that entered service in 2021. The global environment continues to be complex, representing an urgent need to develop greater energy security. Now more than ever, we understand the importance of North America’s role in securing global energy supply. By working closely with our customers, we continue to develop innovative energy solutions to move, generate and store the energy people need daily while also advancing our shared goals for sustainability.”

François Poirier, President and Chief Executive Officer

Highlights:

  • First quarter 2022 results were underpinned by solid utilization and reliability across our assets, further supported by the constructive fundamental outlook for North American energy. The growing need for energy security has placed renewed focus on the long-term role our infrastructure will play in responsibly fulfilling North America’s energy demands:
    • The NGTL System had its highest average winter demand since 2000 of 14.2 Bcf/d ◦ U.S. Natural Gas Pipelines reached average flows of 30 Bcf/d, up five per cent compared to first quarter 2021, including an all-time daily system delivery record of nearly 35 Bcf in January 2022
    • ◦ Today, around a quarter of the U.S. LNG export volumes travel through our U.S. Natural Gas Pipelines • First quarter 2022 financial results
    • ◦ Net income attributable to common shares of $0.4 billion or $0.36 per common share compared to a net loss of $1.1 billion or a loss of $1.11 per common share in 2021. Comparable earnings1 of $1.1 billion or $1.12 per common share compared to $1.1 billion or $1.16 per common share in 2021
    • ◦ Segmented earnings of $1.2 billion compared to segmented losses of $0.9 billion in 2021 and comparable EBITDA1 of $2.4 billion compared to $2.5 billion in 2021
    • ◦ Net cash provided by operations of $1.7 billion was consistent with 2021 results and comparable funds generated from operations1 was $1.9 billion compared to $2.0 billion in 2021
  • Declared a quarterly dividend of $0.90 per common share for the quarter ending June 30, 2022
  • Consistent with our 2021 Annual Report outlook, 2022 comparable EBITDA is expected to be modestly higher than 2021, while 2022 comparable earnings per common share are expected to be consistent with 2021
  • Continued to advance our $25 billion secured capital program by investing $1.7 billion in various growth projects • Filed ANR rate case with FERC in January and filed Great Lakes unopposed rate settlement in March 2022
  • Received FERC approval for Alberta XPress and North Baja XPress projects in April 2022
  • Received verification of final cost and schedule estimates for the Bruce Power Unit 3 MCR program from IESO in March
  • To date in 2022, finalized contracts for approximately 160 MW and 240 MW from our wind energy and solar projects, respectively, following the RFI process initiated in 2021. Expect to finalize additional contracts in 2022
  • Received notice on March 29, 2022 from the Government of Alberta that the Final Project Proposal to build and operate the Alberta Carbon Grid, a joint-venture with Pembina Pipeline Corporation, moves forward to the next stage
  • Announced a plan to evaluate a hydrogen production hub in Crossfield, Alberta in April 2022
  • Issued US$800 million of Junior Subordinated Notes through TransCanada Trust in March 2022.

Outlook:

Our overall comparable EBITDA and comparable earnings per common share outlook for 2022 remains consistent with the 2021 Annual Report. 2022 comparable EBITDA is expected to be modestly higher than 2021, and 2022 comparable earnings per common share outlook is expected to be consistent with 2021. Please refer to the 2021 Annual Report for additional details. We continue to monitor the impact of changes in energy markets, our construction projects and regulatory proceedings as well as COVID-19 for any potential effect on our 2022 comparable EBITDA and comparable earnings per common share.

See full Earnings Release here

(TRP-T) is executing on their projections for 2022 and is meeting expectations. With governments under a lot of political pressure to not build any more pipelines, we like TC Energy’s long-term prospects.

 

Toromont Industries (TIH-T)

“We are pleased with our operating performance and financial results, through a challenging business environment. While end market activity levels remained solid as pandemic restrictions eased in some markets, persistent supply constraint pressures and inflation contribute to a fluid, complex and uncertain operating environment. The Equipment Group reported good activity in rental and product support, while global supply chain challenges persist and continue to impact timing of equipment deliveries. CIMCO revenues decreased in the quarter on timing of project construction schedules, while product support activity improved. Across the organization, we are continuing to leverage the learnings from the past year and maintain our operating disciplines, while incorporating new ways to do business with uncertain conditions.”

Highlights:

  • Toromont’s share price of $118.51 at the end of March 2022, translated to a market capitalization of $9.8 billion and a total enterprise value of $9.6 billion.
  • The Company maintained a very strong financial position. Leverage as represented by the net debt to total capitalization ratio was -8% at the end March 2022, compared to -16% at the end of December 2021 and 2% at the end of March 2021.
  • The Board of Directors approved a quarterly dividend of $0.39 cents per share, payable on July 5, 2022 to shareholders on record on June 9, 2022.
  • The Company’s return on opening shareholders’ equity was 19.7% at the end of March 2022, on a trailing twelve-month basis, compared to 19.6% at the end of December 2021 and 16.7% at the end of March 2021. Trailing twelve month pre-tax return on capital employed was 27.4% at the end of March 2022, compared to 26.6% at the end of December 2020 and 21.5% at the end of March 2021.
  • Revenues increased 7% in the quarter versus the same period last year reflecting solid activity levels in most areas and good execution from our teams. Product support revenues were 10% higher on increased demand and technician headcount, while rental revenues grew 29% on a larger fleet and higher utilization. Equipment sales were relatively unchanged compared to prior year with Equipment Group growth of 4% largely offset by weaker CIMCO package revenues down 7%, as construction projects schedules and deliveries in both cases were deferred due to supply chain constraints.
  • Operating income increased 23% on higher revenues and gross margins. Expense levels were up slightly at 14.8% of revenue, reflecting continued cost focus in an inflationary environment, consistent with gradual business openings.
  • Net earnings increased $11.6 million or 24% in the quarter versus a year ago to $59.5 million or $0.72 EPS.
  • Bookings were 16% lower compared to the similar period last year. The Equipment Group received several large construction and mining orders in the first quarter of 2021. Backlogs were $1.5 billion at March 31, 2022, compared to $911.5 million at March 31, 2021, reflecting strong order activity and supply constraints through the latter part of 2021.

Outlook:

The emergency measures enacted in early 2020, to combat the spread of COVID-19, continue to affect economies and disrupt business operations around the world. Staff shortages, reduced customer activity and demand, product availability and other supplier constraints, cost increases and increased government regulations or intervention, are some of the factors that have and may continue to negatively impact our business, consolidated financial results and conditions of the Company. While generally the situation is improving, there is ongoing concern and uncertainty regarding potential new COVID-19 variants. As a result, it is not possible to reliably estimate the length and severity of these developments as well as the impact on the consolidated financial results and condition of the Company in future periods.

We are closely monitoring global economic factors, in particular, inflationary pressures from price and wage increases, including price increases from our key suppliers. Initiatives are underway across all of our operations to improve efficiency and leverage the learnings from the last two years, including use of technology and innovative ways to engage with customers, employees and other partners with reduced discretionary spending.

The ongoing challenges in the global supply chain have resulted in delivery date delays for equipment, components and parts and this is expected to continue. We continue to actively manage supply chain constraints by taking appropriate mitigation steps in collaboration with our key suppliers and our customers, such as actively sourcing used equipment, optimizing preparation time on equipment, and offering rebuilds and rental options. We expect a tight supply environment to continue.

See full Earnings Release here

Another good earnings report for Toromont Industries (TIH-T). Not all companies are affected by what is happening in the world. Analysts believe favorable demand trends and supply chain tightness are a net positive for equipment dealers. These factors resulted in a profitable mix, primarily in used, rental, and product support, and also aided margins across the board, with gross margins increasing 160 basis points.

It seems we never get a chance to enter a position in (TIH-T). The stock price continues to climb higher.

 

Below is a snapshot of ‘The List’ from last Friday’s close. For a sortable version of ‘The List’, please click on The List menu item.

‘The List’ is not meant to be a template for investors to copy exactly. Rather, its purpose is to provide investment ideas and a real-time illustration of dividend growth investing in action. It is not a ‘Buy List’ nor does it reflect the composition or returns of our Magic Pants Wealth-Builder (CDN) Portfolio. It is only a starting point for our analysis and discussion.

The List (2022)
Last updated by BM on April 29, 2022

*Note: The following graph is wide, you can scroll to the right on your device to see more of the data.

SYMBOL COMPANY YLD PRICE YTD % DIV YTD % STREAK
AQN-N Algonquin Power & Utilities 4.7% $14.45 0.7% $0.68 2.3% 11
ATD-T Alimentation Couche-Tard Inc. 0.8% $57.19 9.8% $0.44 18.1% 12
BCE-T Bell Canada 5.4% $68.30 3.6% $3.68 5.1% 13
BIP-N Brookfield Infrastructure Partners 3.5% $62.43 2.2% $2.16 5.9% 14
CCL-B-T CCL Industries 1.7% $56.01 -17.4% $0.96 14.3% 20
CNR-T Canadian National Railway 1.9% $151.08 -2.5% $2.93 19.1% 26
CTC-A-T Canadian Tire 2.9% $176.95 -3.4% $5.20 10.6% 11
CU-T Canadian Utilities Limited 4.6% $38.62 5.5% $1.78 1.0% 50
DOL-T Dollarama Inc. 0.3% $71.42 12.6% $0.22 9.2% 11
EMA-T Emera 4.3% $62.03 -0.9% $2.65 2.9% 15
ENB-T Enbridge Inc. 6.1% $56.06 13.2% $3.44 3.0% 26
ENGH-T Enghouse Systems Limited 2.0% $36.13 -21.2% $0.72 16.3% 15
FNV-N Franco Nevada 0.8% $151.16 11.1% $1.28 10.3% 14
FTS-T Fortis 3.4% $62.51 3.4% $2.14 2.9% 48
IFC-T Intact Financial 2.2% $179.72 9.8% $4.00 17.6% 17
L-T Loblaws 1.2% $117.51 14.4% $1.46 6.6% 10
MGA-N Magna 3.0% $60.27 -26.1% $1.80 4.7% 12
MRU-T Metro 1.6% $70.61 5.3% $1.10 12.2% 27
RY-T Royal Bank of Canada 3.7% $129.75 -5.2% $4.80 11.1% 11
SJ-T Stella-Jones Inc. 2.3% $35.50 -12.7% $0.80 11.1% 17
STN-T Stantec Inc. 1.2% $58.97 -16.0% $0.71 6.8% 10
TD-T TD Bank 3.8% $92.79 -6.6% $3.56 12.7% 11
TFII-N TFI International 1.3% $80.48 -27.3% $1.08 12.5% 11
TIH-T Toromont Industries 1.3% $113.09 -0.5% $1.52 15.2% 32
TRP-T TC Energy Corp. 5.3% $67.95 13.8% $3.57 4.4% 21
T-T Telus 4.1% $32.14 8.0% $1.31 4.4% 18
WCN-N Waste Connections 0.7% $137.97 2.9% $0.92 8.9% 12
Averages 2.7% -0.9% 9.2% 18

We buy quality individual dividend growth stocks when they are sensibly priced and hold for the growing income.

Follow Us

LinkedIn Social Icon
This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice.
This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities.

Disclaimer | © Copyright 2024 Magic Pants Dividend Growth Investing.

Talk To Us