“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: August 2023

MP Market Review – August 25, 2023

Last updated by BM on August 28, 2023

Summary 

  • This is a weekly installment of our MP Market Review series, which provides updates on the financial markets and Canadian dividend growth companies we monitor on ‘The List’.
  • Last week, ‘The List’ was up with a YTD price return of +1.9% (capital). Dividend growth remained the same and is now at +8.4% YTD, highlighting growth in income over the past year.
  • Last week, no dividend increases from companies on ‘The List’.
  • Last week, two earnings reports from companies on ‘The List’.
  • No companies on ‘The List’ are due to report earnings this week.
  • If you’re interested in creating your own dividend growth income portfolio, consider subscribing to our premium service, which grants you access to the MP Wealth-Builder Model Portfolio (CDN) and exclusive subscriber-only content.  Learn More         

Identifying companies whose dividend growth aligns closely with price growth can considerably enhance the predictability of future returns. Dividend growth investors know that the dividend drives the price in a predictable way, not the other way around. Metro Inc. (MRU-T) is another company on ‘The List’ that follows this dividend growth principle.

Introduction

“You have a pair of pants. In the left pocket, you have $100. You take $1 out of the left pocket and put it 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.”

This ‘magic pants’ analogy was from a Seeking Alpha article on dividend investing I read about a decade ago and was one of the catalysts for me to take a closer look at this type of investing and see if it truly was magical. 

After conducting additional research, I have shifted towards utilizing a dividend growth investing (DGI) strategy as my primary investment approach. While I maintain portfolios consisting of high-quality dividend growers from both the United States and Canada, I have opted to concentrate on Canadian (CDN) dividend growth companies in this blog. This is due to several reasons, including a smaller pool of DGI companies to track, a lack of coverage for the DGI strategy by the North American investment media, and a tendency for those who do cover DGI to narrowly focus on only a handful of sectors (Energy and Financials).

While ‘The List’ is not a portfolio in itself, it serves as an excellent initial reference for individuals seeking to diversify their investments and attain higher returns in the Canadian stock market. Through our blog, we provide weekly updates on ‘The List’ and offer valuable perspectives and real-life examples of the dividend growth investing strategy in practice. This helps readers gain a deeper understanding of how to implement and benefit from this investment approach.

 

DGI Thoughts

“Experience is the worst teacher. It gives the test before giving the lesson.”

– Brendan Moynihan, What I Learned Losing A Million Dollars

The quote is from a book I am reading now. The book highlights an investor who was doing quite well until he wasn’t. It turns out that being lucky versus being good (having a process) can cost you a lot of money.

A short story I read a while back highlights this concept quite well.

Being Lucky vs Being Good– Vishal Khandelwal

Let’s say you sponsor a contest to determine the “world’s best coin flippers.” About 100,000 people from across the world come together to participate in this contest. Everyone flips a coin at the same time.

After each coin flip, those who flip “tails” must leave, until the only people left have flipped 10 consecutive heads. Basic statistics suggest that we could expect about 98 coin flippers to remain at the end of the contest.

The odds of flipping heads 10 times in a row are 1/2^10 = 1/1024. So, for 100,000 participants, there will be 100,000/1,024 = 98 people who would have flipped 10 consecutive heads.

Then, these 98 “skilled” coin flippers would get thousands of likes on Facebook, and followers on Twitter. Those with the best smile and social media skills will write bestselling books about coin flipping, sharing their secrets of how to become a world-class coin flipper.

Sadly, most of us judge the quality of our decisions and actions by one single factor, and that is our one-off good performance that comes easily at the very beginning of our endeavour.

Investing is not any different. As investors, we often struggle with judging whether a decision was good or not, even in hindsight, because like the winning coin flippers we often only look at the outcome and not the process. The truth, however, is that a good process is the only thing that could help you bring the odds of success in your favour. It’s only with a good process that you stand a chance to do well in investing over the long run.

If you have not yet joined as a paid subscriber of the blog to receive DGI Alerts on the activity and content related to our model portfolio, it’s not too late. Click Here. 

Recent News 

The Canadian economy is mired in weak fundamentals and investors are taking note (Globe & Mail)

https://www.theglobeandmail.com/investing/markets/inside-the-market/article-david-rosenberg-the-canadian-economy-is-mired-in-weak-fundamentals-and/

“From a big-picture standpoint, the Canadian economy is mired in weak fundamentals.”

The article points to several reasons why we may anticipate further challenges, with rising immigration levels and a falling GDP being the most concerning.

“Productivity in Canada has declined by 1.4 percent year-over-year and has contracted sequentially for four consecutive quarters, as well as in 10 of the past 11 quarters.”

Our recent Q2 earnings reporting season appears to support this perspective, as over 50% of companies on ‘The List’ failed to outperform the same quarter of the previous year. Reviewing the recent Q3 earnings results from the Canadian Banks on ‘The List’ emphasizes this even more.

We will remain vigilant and enhance our growing income during periods of volatility by acquiring our quality dividend growth stocks at ‘sensible prices’.

Two high-yielding stocks with million-dollar purchases (Globe & Mail)

https://www.theglobeandmail.com/investing/markets/inside-the-market/article-mondays-insider-report-two-high-yielding-stocks-with-million-dollar/

“I tend to put great weight on insider transaction activity when I see multiple insiders trading a company’s shares or units.”

The author uses insider transaction activity as an indicator of a ‘sensible price’.

The two stocks he is referring to are on ‘The List’ we follow (EMA-T and T-T).

The List (2023)

Last updated by BM on August 25, 2023

The Magic Pants List contains 27 Canadian dividend growth stocks. ‘The List’ contains Canadian companies that have raised their dividend yearly for at least the last ten years and have a market cap of over a billion dollars. Below is each stock’s symbol, name, current yield, current price, price return year-to-date, current dividend, dividend growth year-to-date and current dividend growth streak. Companies on ‘The List’ are added or subtracted once a year, on January 1. After that, ‘The List’ is set for the next twelve months. Prices and dividends are updated weekly.

SYMBOL COMPANY YLD PRICE YTD % DIV YTD % STREAK
AQN-N Algonquin Power & Utilities 6.9% $7.39 9.8% $0.51 -29.0% 12
ATD-T Alimentation Couche-Tard Inc. 0.8% $71.29 18.5% $0.56 19.1% 13
BCE-T Bell Canada 6.8% $56.32 -6.5% $3.82 5.0% 14
BIP-N Brookfield Infrastructure Partners 4.4% $31.86 5.2% $1.44 6.3% 15
CCL-B-T CCL Industries 1.8% $60.05 3.4% $1.06 10.4% 21
CNR-T Canadian National Railway 2.1% $152.98 -6.1% $3.16 7.8% 27
CTC-A-T Canadian Tire 4.5% $152.63 4.1% $6.90 17.9% 12
CU-T Canadian Utilities Limited 5.6% $32.19 -12.9% $1.79 1.0% 51
DOL-T Dollarama Inc. 0.3% $85.81 7.5% $0.27 23.8% 12
EMA-T Emera 5.4% $50.74 -3.6% $2.76 3.0% 16
ENB-T Enbridge Inc. 7.6% $46.83 -12.2% $3.55 3.2% 27
ENGH-T Enghouse Systems Limited 2.9% $29.47 -17.5% $0.85 18.2% 16
FNV-N Franco Nevada 1.0% $138.47 0.2% $1.36 6.3% 15
FTS-T Fortis 4.2% $53.43 -3.5% $2.26 4.1% 49
IFC-T Intact Financial 2.3% $194.68 -0.6% $4.40 10.0% 18
L-T Loblaws 1.5% $116.55 -3.1% $1.74 10.3% 11
MGA-N Magna 3.3% $56.54 -1.7% $1.84 2.2% 13
MRU-T Metro 1.7% $69.90 -7.4% $1.21 10.0% 28
RY-T Royal Bank of Canada 4.4% $121.02 -5.5% $5.34 7.7% 12
SJ-T Stella-Jones Inc. 1.4% $64.69 30.5% $0.92 15.0% 18
STN-T Stantec Inc. 0.8% $90.22 38.1% $0.77 8.5% 11
TD-T TD Bank 4.8% $80.37 -8.3% $3.84 7.9% 12
TFII-N TFI International 1.1% $127.33 27.2% $1.40 29.6% 12
TIH-T Toromont Industries 1.5% $110.36 12.9% $1.68 10.5% 33
TRP-T TC Energy Corp. 7.7% $48.07 -9.8% $3.69 3.4% 22
T-T Telus Corp. 6.1% $23.35 -11.3% $1.43 7.4% 19
WCN-N Waste Connections 0.7% $137.86 4.7% $1.02 7.4% 13
Averages 3.4% 1.9% 8.4% 19

Six Canadian stocks on ‘The List’ declare earnings and dividends in US dollars and are inter-listed on a US exchange in US dollars. The simplest way to display dividend and price metrics for these stocks is to show their US exchange symbols along with their US dividends and price. The stocks I am referring to have a -N at the end of their symbols. You can still buy their Canadian counterparts (-T), but your dividends will be converted into CDN dollars and will fluctuate based on the exchange rate.

Note: When the dividend and share price currency match, the calculation is straightforward. But it’s not so simple when the dividend is declared in one currency, and the share price is quoted in another. Dividing the former by the latter would produce a meaningless result because it’s a case of apples and oranges. To calculate the yield properly, you must express the dividend and share price in the same currency.

Performance of ‘The List’

Feel free to click on this link, ‘The List’ for a sortable version from our website.

Last week, ‘The List’ was up with a YTD price return of +1.9% (capital). Dividend growth remained the same and is now at +8.4% YTD, highlighting growth in income over the past year.

The best performers last week on ‘The List’ were Enghouse Systems Limited (ENGH-T), up +5.17%; Algonquin Power & Utilities (AQN-N), up +2.64%; and Alimentation Couche-Tard Inc. (ATD-T), up +2.58%.

TD Bank (TD-T) was the worst performer last week, down -4.24%.

 

Dividend Increases

“The growth of dividend paying ability is of significance in the determination of a stock’s quality, or general safety…”

– Arnold Bernhard (the founder of Value Line)

“As a dividend increase is a positive sign of a company’s financial strength, the safest purchase, after research, is a stock with a recent dividend increase.”

– Tom Connolly (the founder of dividendgrowth.ca)

Last week, no dividend increases from companies on ‘The List’.

 

Earnings Releases

Benjamin Graham once remarked that earnings are the principal factor driving stock prices.

Each quarter we will provide readers with weekly earnings updates of stocks on ‘The List’ during the calendar earnings season. 

The updated earnings calendar can be found here.

Earnings growth and dividend growth tend to go hand in hand, so this information can tell us a lot about the future dividend growth of our quality companies. Monitoring our dividend growers periodically is part of the process, and reading the quarterly earnings releases is a good place to start.

No earnings reports from companies on ‘The List’ this week

Last week, two companies on ‘The List’ reported earnings.

Royal Bank of Canada (RY-T) released its third-quarter fiscal 2023 results on Thursday, August 24, 2023, before markets opened.

“Despite a complex operating environment, our Q3 results exemplify RBC’s ability to consistently deliver solid revenue and volume growth underpinned by prudent risk management. We remain focused on executing on our cost reduction strategy while leveraging our strong balance sheet and diversified business model to support our growth and bring long-term value to our clients, communities and shareholders.”

– Dave McKay, President and Chief Executive Officer of Royal Bank of Canada

Highlights:

Outlook:

The near-term macroeconomic backdrop has been more resilient than expected with unemployment rates remaining low across most advanced economies despite increases in interest rates over the last calendar year. Inflation has slowed with energy prices falling below calendar year-ago levels and global supply chain pressures have substantially eased. However, inflation is unlikely to reduce to central bank target rates without some slowing in consumer spending and higher unemployment. Central banks have responded with additional interest rate increases. More recently, there have been early signs that economic growth is slowing. Consumer delinquency rates, as published by the Bank of Canada, have been edging higher and the unemployment rate has begun to rise in Canada. We continue to expect mild recessions in the U.S. and Canada beginning in the second half of calendar 2023.

Source: (RY-T) Q3-2023 Earnings Results

 

TD Bank (TD-T) released its third-quarter fiscal 2023 results on Thursday, August 24, 2023, before markets opened.

“TD delivered strong revenue growth in the quarter and demonstrated the value of its diversified business mix in a challenging economic environment. Investments across our business further strengthened the Bank’s ability to deliver legendary experiences to more than 27 million customers.”

– Bharat Masrani, Group President and Chief Executive Officer

Highlights:

  • Reported diluted earnings per share were $1.57, compared with $1.75.
  • Adjusted diluted earnings per share were $1.99, compared with $2.09.
  • Reported net income was $2,963 million, compared with $3,214 million.
  • Adjusted net income was $3,731 million, compared with $3,813 million.

Outlook:

The global economy remains on track to slow in calendar 2023, but to a lesser extent than anticipated in the previous quarter. As a result, inflation rates across the G-7 have stayed elevated, and central banks have raised interest rates further. The lagged impact of cumulative interest rate hikes is expected to be the primary influence dampening economic growth and returning inflation closer to the target ranges of the various regions by the end of 2024. The impact of bank failures in the U.S. earlier this year has had a more modest impact than initially anticipated.

The U.S. economy expanded by 2.4% annualized in the second calendar quarter of 2023. Underlying domestic demand grew at a healthy 2.3% pace, as business investment accelerated after a soft performance in the first calendar quarter. Consumer spending slowed, while real income growth improved alongside lower inflation. Housing activity continued to weigh on economic growth, as a modest improvement in new home construction was not enough to outweigh weakness in the resale market.

As of July, the U.S. job market was still tight with the unemployment rate at 3.5% in July, close to its multi-decade low. However, there are signs that demand for workers is cooling, as evidenced by both slower trend growth in payrolls and gradually declining job openings. Helped by lower gasoline prices, inflation metrics have been moderating in recent months. Underlying services prices, which have been a source of persistent price pressure, have also started to cool. Nonetheless, inflation remains well above the U.S. Federal Reserve’s 2% target and the central bank remains highly attentive to upside inflation risks.

TD Economics expects the federal funds rate will remain at its current range of 5.25-5.50% through the end of calendar 2023. However, the economic environment remains fluid. The central bank could embark on additional interest rate hikes if a further cooling in the labour market and inflation do not materialize in line with its expectations. Given the steep rise in interest rates over the past year, the trend towards tighter U.S. credit conditions and the likelihood of rolling periods of financial stress related to risk factors, the probability of a recession stateside remains elevated.

The Canadian economy recorded a solid 3.1% annualized rate of expansion in the first calendar quarter of 2023, reflecting a rebound from a soft showing registered in the fourth calendar quarter of 2022. Despite the financial impact of rising interest costs on highly indebted households, consumer spending was strong, supported by population growth, strong job market conditions, excess savings and increased government supports. The housing sector remained a drag on economic growth in the first calendar quarter but has since shown signs of stabilization.

Canadian inflation has moderated, although progress on core inflation metrics has been slow. The trend rate of job growth has slowed below that of the labour force, pushing the unemployment rate higher. TD Economics expects the unemployment rate to continue to move higher in the months ahead. That is expected to contribute to a downturn in consumer spending through the first half of 2024. Given the uncertainty surrounding the impact of substantial interest rate hikes on highly indebted Canadian households, the risk of recession also remains elevated in Canada.

The Bank of Canada raised the overnight interest rate in July to 5.00%, and expressed concern about the persistence of underlying inflation. The incoming economic data will determine whether more interest rate hikes will be required in Canada to bring inflation down to the 2% target. The Canadian dollar is expected to hover around the 75 U.S. cent mark in calendar 2023.

Source: (TD-T) Q3-2023 Earnings Results

MP Market Review – August 18, 2023

Last updated by BM on August 21, 2023

Summary 

  • This is a weekly installment of our MP Market Review series, which provides updates on the financial markets and Canadian dividend growth companies we monitor on ‘The List’.
  • Last week, ‘The List’ was down with a YTD price return of +1.8% (capital). Dividend growth remained the same and is now at +8.4% YTD, highlighting growth in income over the past year.
  • Last week, no dividend increases from companies on ‘The List’.
  • Last week, no earnings reports from companies on ‘The List’.
  • Two companies on ‘The List’ are due to report earnings this week.
  • If you’re interested in creating your own dividend growth income portfolio, consider subscribing to our premium service, which grants you access to the MP Wealth-Builder Model Portfolio (CDN) and exclusive subscriber-only content.  Learn More         

Identifying companies whose dividend growth aligns closely with price growth can considerably enhance the predictability of future returns. Dividend growth investors know that the dividend drives the price in a predictable way, not the other way around. Metro Inc. (MRU-T) is another company on ‘The List’ that follows this dividend growth principle.

Introduction

“You have a pair of pants. In the left pocket, you have $100. You take $1 out of the left pocket and put it 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.”

This ‘magic pants’ analogy was from a Seeking Alpha article on dividend investing I read about a decade ago and was one of the catalysts for me to take a closer look at this type of investing and see if it truly was magical. 

After conducting additional research, I have shifted towards utilizing a dividend growth investing (DGI) strategy as my primary investment approach. While I maintain portfolios consisting of high-quality dividend growers from both the United States and Canada, I have opted to concentrate on Canadian (CDN) dividend growth companies in this blog. This is due to several reasons, including a smaller pool of DGI companies to track, a lack of coverage for the DGI strategy by the North American investment media, and a tendency for those who do cover DGI to narrowly focus on only a handful of sectors (Energy and Financials).

While ‘The List’ is not a portfolio in itself, it serves as an excellent initial reference for individuals seeking to diversify their investments and attain higher returns in the Canadian stock market. Through our blog, we provide weekly updates on ‘The List’ and offer valuable perspectives and real-life examples of the dividend growth investing strategy in practice. This helps readers gain a deeper understanding of how to implement and benefit from this investment approach.

 

DGI Thoughts

“Owning dividend growth stocks in retirement is like having an employer who offers generous wage increases every year.”

– Rob Carrick, Personal Finance Columnist

One of our mentors, Tom Connolly, had an article published in the Globe & Mail this week touting the advantages of dividend growth investing for retirees. His analysis showed how much a portfolio of dividend growth companies produced in income over a ten-year period.

Here is ‘The List’ from our blog, sorted by income generated, over a ten-year period for comparison:

10YR_DIV_PAID-2022-CAGR

Some takeaways from the data:

  • The average income generated over the decade returns ~45% of your original investment back to you in the form of dividends alone.
  • The dividend growth (10Y DG) average of ‘The List’ drives price growth (10Y PG) at about the same rate (10.0% vs 10.3%).
  • The average annual total return (10Y TR) generated from ‘The List’ was 12.4%. This outperforms the TSX Composite index, and all other Canadian dividend growth mutual fund returns by almost 40% over the same time frame!
  • High dividend growers, near bottom of the list also tend to be higher capital growers (CAGR 10Y PG).
  • Dividend growth of 10% (10Y DG) surpasses inflation by a considerable margin meaning your purchasing power is never impacted.
  • Both income and capital are still growing (unlike bonds, GICs and other fixed income investments).
  • Starting yield is much higher now than in 2013 (3.4% vs 2.7%).

If you have not yet joined as a paid subscriber of the blog to receive DGI Alerts on the activity and content related to our model portfolio, it’s not too late. Click Here. 

Recent News 

Want to grow your retirement income every year? Dividend growth stocks like these deliver. (Globe & Mail)

https://www.theglobeandmail.com/investing/markets/inside-the-market/article-want-to-grow-your-retirement-income-every-year-dividend-growth-stocks/

“A general rule from Mr. Connolly: share price growth tracks a company’s dividend growth rate. Not in lockstep, but there is a strong correlation.”

Good article on income generation from a list of dividend growth stocks, over a ten-year period, by one of my mentors, Tom Connolly.

“Whether it happens at some point in 2024 or beyond, interest rates will start to fall and dividend stocks will become more appealing to investors. Buying now puts you in a position to benefit from high yields in 2023, dividend growth in the future and the potential for capital gains.”

 We agree with the author on this point. The recent yields of good dividend growers are now ~25% higher than in 2013.

Dividend stocks are a better investment than income properties: BMO economist. (Globe & Mail)

https://www.theglobeandmail.com/investing/markets/inside-the-market/article-dividend-stocks-are-a-better-investment-than-income-properties-bmo/

The author correctly points out many parallels between real estate investing and dividend growth investing. Both provide growing income and as the income goes up, so does the underlying asset’s price. A few of the differences are highlighted in this article which moves the needle towards dividend growth investing as our preferred choice.

As a real estate investor early in my career, I found out the hard way that the time I spent on real estate investing could have been better spent focusing on my career and building a dividend growth portfolio of quality companies in tandem.

The List (2023)

Last updated by BM on August 18, 2023

The Magic Pants List contains 27 Canadian dividend growth stocks. ‘The List’ contains Canadian companies that have raised their dividend yearly for at least the last ten years and have a market cap of over a billion dollars. Below is each stock’s symbol, name, current yield, current price, price return year-to-date, current dividend, dividend growth year-to-date and current dividend growth streak. Companies on ‘The List’ are added or subtracted once a year, on January 1. After that, ‘The List’ is set for the next twelve months. Prices and dividends are updated weekly.

SYMBOL COMPANY YLD PRICE YTD % DIV YTD % STREAK
AQN-N Algonquin Power & Utilities 7.0% $7.20 7.0% $0.51 -29.0% 12
ATD-T Alimentation Couche-Tard Inc. 0.8% $69.50 15.6% $0.56 19.1% 13
BCE-T Bell Canada 6.9% $55.14 -8.5% $3.82 5.0% 14
BIP-N Brookfield Infrastructure Partners 4.4% $32.01 5.2% $1.44 6.3% 15
CCL-B-T CCL Industries 1.8% $60.35 4.0% $1.06 10.4% 21
CNR-T Canadian National Railway 2.1% $153.95 -5.5% $3.16 7.8% 27
CTC-A-T Canadian Tire 4.4% $155.57 6.1% $6.90 17.9% 12
CU-T Canadian Utilities Limited 5.6% $32.24 -12.7% $1.79 1.0% 51
DOL-T Dollarama Inc. 0.3% $86.38 8.2% $0.27 23.8% 12
EMA-T Emera 5.4% $51.48 -2.2% $2.76 3.0% 16
ENB-T Enbridge Inc. 7.5% $47.25 -11.4% $3.55 3.2% 27
ENGH-T Enghouse Systems Limited 3.0% $28.02 -21.5% $0.85 18.2% 16
FNV-N Franco Nevada 1.0% $135.57 -1.9% $1.36 6.3% 15
FTS-T Fortis 4.2% $53.71 -2.9% $2.26 4.1% 49
IFC-T Intact Financial 2.3% $195.50 -0.1% $4.40 10.0% 18
L-T Loblaws 1.5% $115.72 -3.8% $1.74 10.3% 11
MGA-N Magna 3.3% $55.64 -3.3% $1.84 2.2% 13
MRU-T Metro 1.7% $70.20 -7.0% $1.21 10.0% 28
RY-T Royal Bank of Canada 4.4% $121.47 -5.1% $5.34 7.7% 12
SJ-T Stella-Jones Inc. 1.4% $64.80 30.7% $0.92 15.0% 18
STN-T Stantec Inc. 0.9% $89.19 36.5% $0.77 8.5% 11
TD-T TD Bank 4.6% $83.93 -4.3% $3.84 7.9% 12
TFII-N TFI International 1.1% $130.03 29.9% $1.40 29.6% 12
TIH-T Toromont Industries 1.5% $110.17 12.8% $1.68 10.5% 33
TRP-T TC Energy Corp. 7.6% $48.44 -9.1% $3.69 3.4% 22
T-T Telus Corp. 6.3% $22.83 -13.3% $1.43 7.4% 19
WCN-N Waste Connections 0.7% $138.00 4.8% $1.02 7.4% 13
Averages 3.4% 1.8% 8.4% 19

Six Canadian stocks on ‘The List’ declare earnings and dividends in US dollars and are inter-listed on a US exchange in US dollars. The simplest way to display dividend and price metrics for these stocks is to show their US exchange symbols along with their US dividends and price. The stocks I am referring to have a -N at the end of their symbols. You can still buy their Canadian counterparts (-T), but your dividends will be converted into CDN dollars and will fluctuate based on the exchange rate.

Note: When the dividend and share price currency match, the calculation is straightforward. But it’s not so simple when the dividend is declared in one currency, and the share price is quoted in another. Dividing the former by the latter would produce a meaningless result because it’s a case of apples and oranges. To calculate the yield properly, you must express the dividend and share price in the same currency.

Performance of ‘The List’

Feel free to click on this link, ‘The List’ for a sortable version from our website.

Last week, ‘The List’ was up with a YTD price return of +1.8% (capital). Dividend growth remained the same and is now at +8.4% YTD, highlighting growth in income over the past year.

The best performers last week on ‘The List’ were Dollarama Inc. (DOL-T), up +0.91%; Canadian Utilities Limited (CU-T), up +0.34%; and Emera (EMA-T), down -0.17%.

Franco Nevada (FNV-N) was the worst performer last week, down -5.09%.

 

Dividend Increases

“The growth of dividend paying ability is of significance in the determination of a stock’s quality, or general safety…”

– Arnold Bernhard (the founder of Value Line)

“As a dividend increase is a positive sign of a company’s financial strength, the safest purchase, after research, is a stock with a recent dividend increase.”

– Tom Connolly (the founder of dividendgrowth.ca)

Last week, no dividend increases from companies on ‘The List’.

 

Earnings Releases

Benjamin Graham once remarked that earnings are the principal factor driving stock prices.

Each quarter we will provide readers with weekly earnings updates of stocks on ‘The List’ during the calendar earnings season. 

The updated earnings calendar can be found here.

Earnings growth and dividend growth tend to go hand in hand, so this information can tell us a lot about the future dividend growth of our quality companies. Monitoring our dividend growers periodically is part of the process, and reading the quarterly earnings releases is a good place to start.

Two earnings reports from companies on ‘The List’ this week

Royal Bank of Canada (RY-T) will release its third-quarter fiscal 2023 results on Thursday, August 24, 2023, before markets open.

TD Bank (TD-T) will release its third-quarter fiscal 2023 results on Thursday, August 24, 2023, before markets open.

Last week, no companies on ‘The List’ reported earnings.

 

MP Market Review – August 11, 2023

Last updated by BM on August 14, 2023

Summary 

  • This is a weekly installment of our MP Market Review series, which provides updates on the financial markets and Canadian dividend growth companies we monitor on ‘The List’.
  • Last week, ‘The List’ was up with a YTD price return of +4.1% (capital). Dividend growth remained the same and is now at +8.4% YTD, highlighting growth in income over the past year.
  • Last week, no dividend increases from companies on ‘The List’.
  • Last week, eight earnings reports from companies on ‘The List’.
  • No companies on ‘The List’ are due to report earnings this week.
  • If you’re interested in creating your own dividend growth income portfolio, consider subscribing to our premium service, which grants you access to the MP Wealth-Builder Model Portfolio (CDN) and exclusive subscriber-only content.  Learn More         

Identifying companies whose dividend growth aligns closely with price growth can considerably enhance the predictability of future returns. Dividend growth investors know that the dividend drives the price in a predictable way, not the other way around. Metro Inc. (MRU-T) is another company on ‘The List’ that follows this dividend growth principle.

Introduction

“You have a pair of pants. In the left pocket, you have $100. You take $1 out of the left pocket and put it 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.”

This ‘magic pants’ analogy was from a Seeking Alpha article on dividend investing I read about a decade ago and was one of the catalysts for me to take a closer look at this type of investing and see if it truly was magical. 

After conducting additional research, I have shifted towards utilizing a dividend growth investing (DGI) strategy as my primary investment approach. While I maintain portfolios consisting of high-quality dividend growers from both the United States and Canada, I have opted to concentrate on Canadian (CDN) dividend growth companies in this blog. This is due to several reasons, including a smaller pool of DGI companies to track, a lack of coverage for the DGI strategy by the North American investment media, and a tendency for those who do cover DGI to narrowly focus on only a handful of sectors (Energy and Financials).

While ‘The List’ is not a portfolio in itself, it serves as an excellent initial reference for individuals seeking to diversify their investments and attain higher returns in the Canadian stock market. Through our blog, we provide weekly updates on ‘The List’ and offer valuable perspectives and real-life examples of the dividend growth investing strategy in practice. This helps readers gain a deeper understanding of how to implement and benefit from this investment approach.

 

DGI Thoughts

“The four most expensive words in the English language are ‘This time it’s different.’”

 – Sir John Templeton

The Q2 Earnings season is over for companies we follow on ‘The List’. Check out the earnings calendar here and see how each company performed against analyst expectations and the same quarter last year.

Over 50% of the companies we follow did not meet their Q2 comparable earnings from 2022! This should be a signal to investors that even the highest-quality companies are seeing the effects of higher interest rates and inflation. The economy is definitely starting to slow down.

On the flip side, some companies are doing quite well. They tend to be non-cyclical in nature and have pricing power built-in to their business models to offset the effects of inflation on the cost side. Think food retail and utilities.

The third quarter should be interesting. We will find out if the central banks will continue their fight against inflation and slow the economy even further or are they done, and earnings will start to recover. Either way, pay attention to the earnings numbers and take a few minutes to read the quarterly earnings releases below, especially the ‘Outlook’ sections. From this you will get a better sense if management is hinting of an earnings contraction in the quarter ahead or ‘will it be different this time’.

If you have not yet joined as a paid subscriber of the blog to receive DGI Alerts on the activity and content related to our model portfolio, it’s not too late. Click Here. 

Recent News 

Why the stellar performance of the magnificent seven makes a case for index investing (Globe & Mail)

https://www.theglobeandmail.com/investing/markets/inside-the-market/article-why-the-stellar-performance-of-the-magnificent-seven-makes-a-case-for/

“The so-called magnificent seven stocks were responsible for practically all of the gains in the S&P 500 index through the first half of the year. Widen the lens out to the entire world, and roughly 70 per cent of the net wealth created by stock markets globally was driven by this handful of tech behemoths.”

“This year makes an unusually strong case for a broad index approach, which may seem counterintuitive. Why would you want to be forced to own legions of losing stocks when the market rally is so heavily concentrated in a small core of elite names?”

Articles like this perpetuate the myth that index investing is the place to be right now. How soon we forget the market indexes in 2022!

Stop your active portfolio manager bashing. Skill does still matter (Globe & Mail)

https://www.theglobeandmail.com/investing/investment-ideas/article-active-investment-strategy-success/

“Funds that invest in concentrated portfolios and/or deviate significantly from benchmarks tend to outperform, according to recent academic studies.”

There is a lot of good information in this article. There is a lot of good information in this article. Dividend growth investing is a ‘value-oriented’ investing strategy as well. We only purchase our quality dividend growers when they are sensibly (value) priced.

Here are a few of my favorite quotes:

“One can earn risk-adjusted returns of up to 9 per cent a year with rudimentary analysis of the most commonly reported accounting information. Such abnormal profits are a result of fundamental analysis and taking advantage of market inefficiencies.”

“The value-investing process involves three steps. Initially, value investors screen stocks and form portfolios based on a number of metrics such as P/E, P/B, market cap, etc. and focus on stocks in the lowest ranked portfolio. This allows them to identify stocks that have desirable characteristics (i.e., low price vs. fundamentals) and, at the same time, reduce the number of stocks they will consider in depth. The stocks selected from the initial step are now valued to determine their intrinsic value using both asset based and cash-flow-based valuation approaches. Finally, they make a decision to invest only in stocks that are truly undervalued, namely stocks that meet the required margin of safety.”

“Slow economic growth around the world, particularly in China, as well as a slowdown in productivity, lower population growth, aging baby boomers, higher taxes, higher inflation/interest rates and lower government spending will lead to an increase in stock-market volatility. An expensive market will also contribute to rising volatility, both realized and expected.

In this environment, active managers, such as value investors, will shine.”

To receive breaking news about companies on ‘The List’ follow us on Twitter @MagicPants_DGI.

The List (2023)

Last updated by BM on August 11, 2023

The Magic Pants List contains 27 Canadian dividend growth stocks. ‘The List’ contains Canadian companies that have raised their dividend yearly for at least the last ten years and have a market cap of over a billion dollars. Below is each stock’s symbol, name, current yield, current price, price return year-to-date, current dividend, dividend growth year-to-date and current dividend growth streak. Companies on ‘The List’ are added or subtracted once a year, on January 1. After that, ‘The List’ is set for the next twelve months. Prices and dividends are updated weekly.

SYMBOL COMPANY YLD PRICE YTD % DIV YTD % STREAK
AQN-N Algonquin Power & Utilities 6.8% $7.48 11.1% $0.51 -29.0% 12
ATD-T Alimentation Couche-Tard Inc. 0.8% $69.73 15.9% $0.56 19.1% 13
BCE-T Bell Canada 6.7% $56.78 -5.7% $3.82 5.0% 14
BIP-N Brookfield Infrastructure Partners 4.4% $33.31 5.2% $1.44 6.3% 15
CCL-B-T CCL Industries 1.7% $61.99 6.8% $1.06 10.4% 21
CNR-T Canadian National Railway 2.0% $157.23 -3.5% $3.16 7.8% 27
CTC-A-T Canadian Tire 4.4% $156.82 7.0% $6.90 17.9% 12
CU-T Canadian Utilities Limited 5.6% $32.13 -13.0% $1.79 1.0% 51
DOL-T Dollarama Inc. 0.3% $85.60 7.2% $0.27 23.8% 12
EMA-T Emera 5.4% $51.57 -2.0% $2.76 3.0% 16
ENB-T Enbridge Inc. 7.2% $49.38 -7.4% $3.55 3.2% 27
ENGH-T Enghouse Systems Limited 3.0% $28.21 -21.0% $0.85 18.2% 16
FNV-N Franco Nevada 1.0% $142.84 3.4% $1.36 6.3% 15
FTS-T Fortis 4.1% $54.53 -1.5% $2.26 4.1% 49
IFC-T Intact Financial 2.2% $200.23 2.3% $4.40 10.0% 18
L-T Loblaws 1.5% $118.01 -1.9% $1.74 10.3% 11
MGA-N Magna 3.2% $57.25 -0.5% $1.84 2.2% 13
MRU-T Metro 1.7% $71.09 -5.8% $1.21 10.0% 28
RY-T Royal Bank of Canada 4.2% $127.57 -0.4% $5.34 7.7% 12
SJ-T Stella-Jones Inc. 1.4% $68.10 37.4% $0.92 15.0% 18
STN-T Stantec Inc. 0.9% $89.69 37.3% $0.77 8.5% 11
TD-T TD Bank 4.5% $86.26 -1.6% $3.84 7.9% 12
TFII-N TFI International 1.1% $132.49 32.3% $1.40 29.6% 12
TIH-T Toromont Industries 1.4% $115.87 18.6% $1.68 10.5% 33
TRP-T TC Energy Corp. 7.5% $49.33 -7.4% $3.69 3.4% 22
T-T Telus Corp. 6.0% $23.78 -9.7% $1.43 7.3% 19
WCN-N Waste Connections 0.7% $140.68 6.8% $1.02 7.4% 13
Averages 3.3% 4.1% 8.4% 19

Six Canadian stocks on ‘The List’ declare earnings and dividends in US dollars and are inter-listed on a US exchange in US dollars. The simplest way to display dividend and price metrics for these stocks is to show their US exchange symbols along with their US dividends and price. The stocks I am referring to have a -N at the end of their symbols. You can still buy their Canadian counterparts (-T), but your dividends will be converted into CDN dollars and will fluctuate based on the exchange rate.

Note: When the dividend and share price currency match, the calculation is straightforward. But it’s not so simple when the dividend is declared in one currency, and the share price is quoted in another. Dividing the former by the latter would produce a meaningless result because it’s a case of apples and oranges. To calculate the yield properly, you must express the dividend and share price in the same currency.

Performance of ‘The List’

Feel free to click on this link, ‘The List’ for a sortable version from our website.

Last week, ‘The List’ was up with a YTD price return of +4.1% (capital). Dividend growth remained the same and is now at +8.4% YTD, highlighting growth in income over the past year.

The best performers last week on ‘The List’ were Alimentation Couche-Tard Inc. (ATD-T), up +5.67%; Telus Corp. (T-T), up +3.53%; and Canadian Utilities Limited (CU-T), up +2.91%.

Canadian Tire (CTC-A-T) was the worst performer last week, down -12.27%.

 

Dividend Increases

“The growth of dividend paying ability is of significance in the determination of a stock’s quality, or general safety…”

– Arnold Bernhard (the founder of Value Line)

“As a dividend increase is a positive sign of a company’s financial strength, the safest purchase, after research, is a stock with a recent dividend increase.”

– Tom Connolly (the founder of dividendgrowth.ca)

Last week, no dividend increases from companies on ‘The List’.

 

Earnings Releases

Benjamin Graham once remarked that earnings are the principal factor driving stock prices.

Each quarter we will provide readers with weekly earnings updates of stocks on ‘The List’ during the calendar earnings season. 

The updated earnings calendar can be found here.

Earnings growth and dividend growth tend to go hand in hand, so this information can tell us a lot about the future dividend growth of our quality companies. Monitoring our dividend growers periodically is part of the process, and reading the quarterly earnings releases is a good place to start.

No earnings reports from companies on ‘The List’ this week

Last week, eight companies on ‘The List’ reported earnings.

Franco Nevada (FNV-N) released its second-quarter fiscal 2023 results on Tuesday, August 8, 2023, after markets closed.

“Our portfolio continues to generate strong cash flows and high margins. The second quarter’s results benefited from our core assets returning to normal production and deliveries caught up from the disruptions in Q1. Revenue from our Diversified assets was impacted by lower oil, gas and iron ore prices compared to the relative highs of the prior year period. We expect Total GEOs for the year to be at the low end of our guidance range provided in March this year. We are looking forward to increased contributions from Cobre Panama, where the CP100 Expansion is on-track for year-end, and to contributions from royalties on several new mines. Franco-Nevada is debt-free and is growing its cash balances.”

– Paul Brink, Chief Executive Officer

Highlights:

  • In Q2 2023, we earned $329.9 million in revenue, down 6.4% from Q2 2022, as the impact of lower commodity prices for our Diversified assets more than offset the increase in revenue from our Precious Metal assets. With Cobre Panama and Antapaccay operating at full production levels following the temporary disruptions in early 2023, both assets generated strong deliveries in Q2 2023. Partly offsetting the impact of lower oil and gas prices, during the quarter, we received catch-up royalty payments of approximately $7.0 million related to new wells primarily at our Permian interests, which are not expected to reoccur.
  • Precious Metal revenue accounted for 78.6% of our revenue (64.8% gold, 10.7% silver, 3.1% PGM). Revenue was sourced 88.9% from the Americas (32.1% South America, 26.2% Central America & Mexico, 17.5% U.S. and 13.1% Canada).

Outlook:

Q2 Earnings Conference Call

Question: “Paul as you mentioned, you’re now targeting the lower end of the guidance range. If you kind of answered my question, but I just want to confirm. If I just look at your precious metals guidance, you’re actually tracking pretty well. So the fact that you’re targeting for total GEOs, the lower end. Is that really just due to lower sort of diversified prices, energy prices, iron ore prices? Or is that too simplistic of a way to look at it?

Answer: “You’re essentially correct. It’s — when we did our original guidance, the iron ore price we used was higher than what it’s averaged thus far in 2023 and what we’re using going forward, same with the energy prices. And so the other side, the gold price is higher than what we had in our original guidance. So you get a double impact on converting the non-gold revenue to GEOs, and that’s essentially the reason for guiding to the lower end.”

– Paul Brink, Chief Executive Officer

Source: (FNV-N) Q2-2023 Earnings Release

 

Metro (MRU-T) released its third-quarter fiscal 2023 results on Wednesday, August 9, 2023, before markets opened.

“We delivered solid results in the third quarter fueled by strong same-store sales and good operating leverage. With persistent food inflation, our teams did an excellent job to offer good value to our customers, resulting in market share gains and tonnage growth, driven by our discount food stores. Our loyalty program MOİ was successfully launched this quarter and we are pleased with the strong customer response so far. This enhanced program provides even more value to customers by offering multiple ways to earn and redeem points on food and pharmacy purchases in Québec. We are clearly disappointed with the current labour dispute in 27 of our Metro stores in the Greater Toronto Area given that we had reached a very good agreement that was unanimously recommended by union representatives. We look forward to a resolution and the re-opening of our stores as soon as possible, while ensuring the long-term competitiveness of our company.”

– Eric La Fleche, President and Chief Executive Officer

Highlights:

  • Sales of $6,427.5 million, up 9.6%
  • Food same-store sales up 9.4%
  • Pharmacy same-store sales up 5.9%
  • Net earnings of $346.7 million, up 26.1%, and adjusted net earnings of $314.8 million, up 10.9%
  • Fully diluted net earnings per share of $1.49, up 30.7%, and adjusted fully diluted net earnings per share of $1.35, up 14.4%

Outlook:

We remain focused on offering quality products at competitive prices as higher than normal inflation and market challenges persist. While we are not able to predict how the current macro-economic environment will evolve, we are seeing some moderation in food inflation, although it is still elevated compared to pre-pandemic levels. With this backdrop, we remain resilient and committed to providing the best value for our customers while delivering on our strategic priorities. In this respect, we look forward to the launch of our state-of-the-art, automated distribution center north of Montreal in the coming weeks.

Source: (MRU-T) Q3-2023 Earnings Release

 

Stella-Jones Inc. (SJ-T) released its second-quarter fiscal 2023 results on Wednesday, August 9, 2023, before markets opened.

“Stella-Jones is executing on its three-year growth plan with the achievement of another strong performance in the second quarter, reflecting the upward momentum generated by accelerating demand for our infrastructure-related products. Our second quarter results continued to benefit from higher pricing dynamics for utility poles, railway ties and industrial products, while residential lumber delivered sales in line with expectations.”

– Eric Vachon, President and Chief Executive Officer

Highlights:

  • Sales of $972 million, up 7%
  • 10% organic sales growth in infrastructure-related businesses
  • EBITDA of $175 million, or a margin of 18%, up from 17% in Q2 2022
  • Net income of $100 million, or $1.72 per share, up 14% from EPS in Q2 2022
  • Completed acquisitions and projects to seize growing utility pole demand

Outlook:

“In the second half of the year, we expect replenished railway tie inventory levels and ongoing capital projects for utility poles to facilitate anticipated volume gains, while our recent acquisitions of Balfour Pole Co. and Baldwin Pole and Pilings’ assets will further broaden the Company’s presence across North America. Our performance so far this year aligns with our plan to continue to grow our infrastructure-related businesses, increase profitability, as evidenced by the strong EBITDA margin generated in the second quarter, and to return capital and drive value for our shareholders. Managing capital projects, acquisitions and strong organic growth requires the resourcefulness and agility of our team of experts, and I am proud to recognize their invaluable contribution to our business.”

– Eric Vachon, President and Chief Executive Officer

Source: (SJ-T) Q2-2023 Earnings Release

 

Stantec (STN-T) released its second-quarter fiscal 2023 results on Wednesday, August 9, 2023, after markets closed.

“We continue to deliver significant growth in revenue and earnings driven by strong performance across all our regional and business operating units. As a result of our strong year-to-date results and our expectation of continued favorable market fundamentals for the remainder of the year, we are increasing our net revenue and adjusted earnings per share guidance for 2023.”

– Gord Johnston, President and Chief Executive Officer

Highlights:

Q2 2023 compared to Q2 2022

  • Net revenue increased 14.5% or $162.0 million to $1.3 billion, primarily driven by 11.2% organic growth. Double-digit organic growth was achieved in all regions and in Water, Environmental Services, and Energy & Resources businesses.
  • Project margin increased $91.3 million or 15.1% to $694.0 million. As a percentage of net revenue, project margin increased by 30 basis points to 54.3%.
  • Adjusted EBITDA increased $29.3 million or 15.7% to $216.0 million. Adjusted EBITDA margin increased by 20 basis points over Q2 2022 to 16.9%, despite a significant expense related to the revaluation of the Company’s LTIP, primarily due to strong share price appreciation in the quarter. Excluding the revaluation, adjusted EBITDA margin was 17.5%.
  • Net income increased 45.0%, or $27.3 million, to $88.0 million, and diluted EPS increased 43.6%, or $0.24, to $0.79, mainly due to strong net revenue growth, solid project margins, and lower administrative and marketing expenses as a percentage of net revenue.
  • Adjusted net income and adjusted diluted EPS achieved record highs in the quarter. Adjusted net income grew 18.1%, or $16.8 million, to $109.4 million, achieving 8.6% of net revenue (9.0% without the effect of the LTIP revaluation), and adjusted diluted EPS increased 19.3% to $0.99 ($1.04 without the effect of the LTIP revaluation).
  • Contract backlog increased to $6.6 billion at June 30, 2023, a record high reflecting 10.0% organic growth from December 31, 2022—with double-digit organic backlog growth in Stantec’s US and Canada operations as well as in Environmental Services and Water. Contract backlog represents approximately 13 months of work—an increase of one month from December 31, 2022.
  • Operating cash flows increased $35.4 million, with cash inflows of $31.0 million, reflecting strong revenue growth and operational performance. This compares to $4.4 million outflows in the comparative period, which resulted primarily from the Cardno financial system integration.
  • DSO1 was 81 days, consistent with December 31, 2022 and March 31, 2023.
  • On June 30, 2023, Stantec acquired Environmental Systems Design, Inc. (ESD), a 300-person firm headquartered in Chicago that provides building engineering services, specializing in mission critical and data center services.
  • Net debt to adjusted EBITDA (on a trailing twelve-month basis) at June 30, 2023 was 1.8x, remaining within Stantec’s internal target range of 1.0x to 2.0x, and reflecting the impact of funding the ESD acquisition on the last day of the reporting period.
  • On June 27, 2023, Stantec issued $250 million senior unsecured notes due June 27, 2030 that bear interest at a fixed rate of 5.393% per annum. These notes were assigned an investment-grade credit rating of BBB by DBRS Limited. Additionally, the Company entered into and fully drew upon an unsecured bilateral term credit facility of $100 million that matures on June 17, 2024. The proceeds of both the notes and new term facility were used to repay a portion of existing indebtedness on the revolving credit facility.

Outlook:

Stantec is revising and increasing certain targets contained within the Company’s 2023 guidance (provided on page M-10 in the 2022 Annual Report) based on the strength of the Company’s financial performance to date and the outlook for the balance of this year.

Stantec is raising its guidance for net revenue and adjusted diluted EPS growth and narrowing the target range for adjusted EBITDA as a percentage of net revenue.

Source: (STN-T) Q2-2023 Earnings Release

 

CCL Industries (CCL-B-T) released its second-quarter fiscal 2023 results on Wednesday, August 9, 2023, after markets closed.

“Solid second quarter results were held by slowing demand in parts of the economy as higher interest rates took hold impacting consumer spending patterns. Avery and Checkpoint both continued to post organic growth, but more than offset by a modest decline in the CCL Segment and the pass through of energy, freight and raw materials deflation at Innovia.”

– Geoffrey T. Martin, President and Chief Executive Officer

Highlights:

  • Net earnings decreased 4.6% to $155.9 million for the 2023 second quarter compared to $163.4 million for the 2022 second quarter. Basic and adjusted basic earnings per Class B share for the 2023 second quarter were $0.88 and $0.90, respectively, compared to basic and adjusted basic earnings per Class B share of $0.91 and $0.94, respectively, in the prior year second quarter. Foreign currency translation had a positive $0.05 per share impact on earnings.
  • Sales for the second quarter of 2023 increased 1.8% to $1,644.5 million, compared to $1,615.2 million for the second quarter of 2022, with an organic decline of 4.5% offset by acquisition related growth of 1.0% and a 5.3% positive impact from foreign currency translation.
  • Operating income for the second quarter of 2023 was $242.0 million compared to $247.8 million for the comparable quarter of 2022. Operating income for the 2022 second quarter included a $3.5 million non-cash acquisition accounting adjustment related to the acquired inventory from the Adelbras acquisition that was expensed in the Company’s cost of sales in the period. Foreign currency translation had a 5.8% positive impact on operating income for the comparable quarters.
  • The Company recorded an expense for restructuring and other items of $2.9 million, primarily attributable to reorganization charges at CCL Design and transaction costs associated with acquisitions completed in the current year compared to $3.2 million for reorganization costs in the 2022 second quarter.
  • Tax expense for the second quarter of 2023 was $47.7 million compared to $51.7 million in the prior year period. The effective tax rate for the 2023 second quarter was 24.0%, lower than the 24.4% for the 2022 second quarter due to a higher portion of the Company’s taxable income earned in lower tax jurisdictions.

CCL

  • Sales increased 3.1% to $995.5 million on 3.0% organic decline, offset by 0.3% acquisition contribution and 5.8% positive impact from foreign currency translation
  • Regional organic sales growth: low single digit in Europe and Latin America; North America and Asia Pacific declined low single digit and double digit, respectively
  • Operating income $144.0 million, down 7.0%, 14.5% operating margin down 150 bps
  • Label joint ventures added $0.03 earnings per Class B share

Avery

  • Sales increased 13.3% to $268.0 million on 2.6% organic growth, 5.6% acquisition contribution and 5.1% positive impact from foreign currency translation
  • Operating income $50.3 million, up 7.2%, 18.8% operating margin, down 100 bps

Checkpoint

  • Sales increased 6.8% to $210.5 million on organic growth of 3.3% and 3.5% positive impact from foreign currency translation
  • Operating income $28.1 million, up 24.3%, 13.3% operating margin, up 180 bps

Innovia

  • Sales decreased 21.2% to $170.5 million with 26.6% organic decline partially offset by 5.4% postive impact from foreign currency translation
  • Operating income $19.6 million, down 16.2%, 11.5% operating margin, up 70 bps

Outlook:

  • Core CCL business units’ face slower volume at many consumer packaged goods customers
  • CCL Design: expect modest improvement by Q4 as comps ease, computer industry demand slowly recovers and new business wins kick in
  • CCL Secure demand picture unchanged for second half
  • Avery solid, back to school replenishment orders the only unknown
  • Checkpoint: favorable as inflation recovery and RFID strength continue
  • Innovia volume expected to slowly recover in second half, inflation benign
  • FX tailwind to continue at current exchange rates

Source: (CCL-B-T) Q2-2023 Earnings Release

 

Algonquin Power & Utilities (AQN-T) released its second-quarter fiscal 2023 results on Thursday, August 10, 2023, before markets opened.

“While our second quarter 2023 results were negatively impacted by unfavourable weather, we remain focused on our growth outlook and long-term success.” 

– Chris Huskilson, Interim Chief Executive Officer

Highlights:

  • Revenue of $627.9 million, an increase of 1%;
  • Adjusted EBITDA1 of $277.7 million, a decrease of 4%;
  • Adjusted Net Earnings of $56.2 million, a decrease of 49%; and
  • Adjusted Net Earnings per common share of $0.08, a decrease of 50%, in each case on a year-over-year basis.

Outlook:

Algonquin Brief: Chris Huskilson Appointed Interim CEO, Succeeding Arun Banskota; Board Commencing Search for a Permanent CEO

Following a strategic review, the company determined that focusing on the regulated business and going forward with a sale of the renewable business is the best path forward.

The company expects to sell the renewables business as a whole rather than in parts as management sees significant value in the development pipeline.

“We believe the value of our assets is not fully realized in our current structure. We therefore determined that focusing on our regulated business going forward and pursuing a sale of the renewables business is the best path forward for AQN.”

– Chris Huskilson, Interim Chief Executive Officer

Source: (AQN-N) Q2-2023 Earnings Release

 

Canadian Tire (CTC-A-T) released its second-quarter fiscal 2023 results on Thursday, August 10, 2023, before markets opened.

“As inflation persisted and rate hikes continued, consumer demand for discretionary goods softened, particularly in the latter half of the quarter, and Canadians shifted to more essentials within our multi-category assortment. Loyalty sales continue to outperform non-member spend, driving an increase in loyalty penetration. During this time of macroeconomic uncertainty, Triangle Rewards remains our most important driver in delivering value for our customers.”

– Greg Hicks, President and Chief Executive Officer

Highlights:

  • Consolidated comparable sales were up 0.1%, following strong growth of 5.0% in Q2 2022
  • Normalized diluted Earnings Per Share (“EPS”) was $3.08, compared to $3.11 in Q2 2022; Diluted EPS was $1.76, compared to $2.43 in Q2 2022
  • Loyalty sales as a percentage of retail sales up 80 bps in the quarter

Outlook:

The current macroeconomic environment and consumer demand differ significantly from the Company’s expectations when it set out its strategy and 2022-2025 financial aspirations (average annual Comparable sales growth, Retail Return on Invested Capital and Diluted EPS) at its Investor Day in March 2022. Since early 2022, the cumulative effect of increasing inflationary pressure and higher interest rates on consumer spend and financing costs, along with higher inventory costs, has significantly impacted the Company’s ability to deliver against its previous expectations. Given the slower pacing of growth, and the noticeable slowdown in retail sales during the second quarter of 2023, the Company is withdrawing its previously disclosed financial aspirations at this time.

Despite the near-term consumer demand environment, the Company remains committed to pursuing the strategic objectives that demonstrate its long-term vision and build on its strong market position. The Company also continues to invest in the strategic initiatives outlined in the Better Connected strategy to grow earnings, and continues to make progress on the key initiatives highlighted above, to solidify CTC’s brand and competitive positioning in Canada over the long-term.

Source: (CTC-A-T) Q2-2023 Earnings Release

 

Emera Inc. (EMA-T) released its second-quarter fiscal 2023 results on Friday, August 11, 2023, before markets opened.

“Our team continues to execute well on our proven strategy and despite the continued headwinds of high interest rates and overall inflationary pressures, we are driving solid results for customers and shareholders. As economic growth continues in our service territories, we remain focused on meeting growing demand and achieving a balanced energy transition that delivers increasingly clean energy while maintaining grid reliability and continues to consider cost impacts for customers, all while providing predictable, reliable earnings and cash flow growth for our shareholders.”

– Scott Balfour, President and Chief Executive Officer

Highlights:

  • Quarterly adjusted EPS increased $0.01 to $0.60 compared to $0.59 in Q2 2022. Quarterly reported net income per common share increased $0.35 to $0.10 in Q2 2023 compared to a net loss per common share of $(0.25) in Q2 2022 due to lower mark-to-market (“MTM”) losses.
  • Year-to-date, adjusted EPS increased $0.07 or 5% to $1.58 compared to $1.51 in 2022. Year-to-date reported EPS increased by $1.05 to $2.17 from $1.12 in 2022 due to MTM gains in 2023 compared to MTM losses in 2022.
  • Adjusted EPS contributions from our regulated utilities increased 8% for the quarter and 3% year-to-date primarily driven by rate supported capital investments and continued customer growth partially offset by higher interest expense and less favourable weather. On a consolidated basis these increases were partially offset by higher corporate interest expense and lower contributions from Emera Energy Services (“EES”) during the quarter.
  • On track to deploy $2.8 billion in capital in 2023 with $1.4 billion invested in the first half of the year.

Outlook:

There have been no material changes in Emera’s business overview and outlook from the Company’s 2022 annual MD&A other than the updates as disclosed below. Emera’s year-to-date results have been impacted by macroeconomic conditions, specifically higher interest rates as well as other impacts of inflation. These macroeconomic conditions are likely to continue for the near term. For information on general economic risk, including interest rate and inflation risk, refer to the “Enterprise Risk and Risk Management – General Economic Risk” in Emera’s 2022 annual MD&A. For details on Emera’s reportable segments, refer to note 1 of the Q2 2023 unaudited condensed consolidated interim financial statements.

Source: (EMA-T) Q2-2023 Earnings Release

 

MP Market Review – August 04, 2023

Last updated by BM on August 07, 2023

Summary 

  • This is a weekly installment of our MP Market Review series, which provides updates on the financial markets and Canadian dividend growth companies we monitor on ‘The List’.
  • Last week, ‘The List’ was down with a YTD price return of +3.9% (capital). Dividend growth remained the same and is now at +8.4% YTD, highlighting growth in income over the past year.
  • Last week, no dividend increases from companies on ‘The List’.
  • Last week, nine earnings reports from companies on ‘The List’.
  • Eight companies on ‘The List’ are due to report earnings this week.
  • If you’re interested in creating your own dividend growth income portfolio, consider subscribing to our premium service, which grants you access to the MP Wealth-Builder Model Portfolio (CDN) and exclusive subscriber-only content.  Learn More         

Identifying companies whose dividend growth aligns closely with price growth can considerably enhance the predictability of future returns. Dividend growth investors know that the dividend drives the price in a predictable way, not the other way around. Waste Connections (WCN-T) is another company on ‘The List’ that follows this dividend growth principle.

Introduction

“You have a pair of pants. In the left pocket, you have $100. You take $1 out of the left pocket and put it 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.”

This ‘magic pants’ analogy was from a Seeking Alpha article on dividend investing I read about a decade ago and was one of the catalysts for me to take a closer look at this type of investing and see if it truly was magical. 

After conducting additional research, I have shifted towards utilizing a dividend growth investing (DGI) strategy as my primary investment approach. While I maintain portfolios consisting of high-quality dividend growers from both the United States and Canada, I have opted to concentrate on Canadian (CDN) dividend growth companies in this blog. This is due to several reasons, including a smaller pool of DGI companies to track, a lack of coverage for the DGI strategy by the North American investment media, and a tendency for those who do cover DGI to narrowly focus on only a handful of sectors (Energy and Financials).

While ‘The List’ is not a portfolio in itself, it serves as an excellent initial reference for individuals seeking to diversify their investments and attain higher returns in the Canadian stock market. Through our blog, we provide weekly updates on ‘The List’ and offer valuable perspectives and real-life examples of the dividend growth investing strategy in practice. This helps readers gain a deeper understanding of how to implement and benefit from this investment approach.

 

DGI Thoughts

“I do believe it is possible for a minority of investors to get significantly better results than average. Two conditions are necessary for that. One is that they must follow some sound principles of selection that are related to the value of securities and not to their market price. The other is that their method of operation must be basically different from that of the majority of security buyers. They have to cut themselves off from the general public and put themselves into a different category.”

– Benjamin Graham, The Intelligent Investor, 1949

The above quote is found on our blog’s ‘About’ page, as it is one of the reasons we embraced the dividend growth strategy years ago. By doing so, we were able to “cut ourselves off from the general public and put ourselves into a different category.” It is interesting to find a quote written almost seventy-five years ago still relevant today as per a recent study in the Financial Analysts Journal earlier this year.

This is why stock picking is so hard – and index investing so easy – for favourable returns (Globe & Mail)

https://www.theglobeandmail.com/investing/investment-ideas/article-positive-skewness-shows-how-just-a-few-stocks-enhance-index-returns/

The article referenced in the Globe & Mail, and featured in the most recent issue of the Financial Analysts Journal (Spring 2023) proposes that market index returns are predominantly characterized by positive skewness. The article further emphasizes the high level of risk associated with deviating from the benchmark index weights assigned to individual stocks unless one possesses distinctive proprietary insights.

Graham’s version of ‘proprietary insights’ would be those investors who follow some sound principles of selection that are related to the value of securities and not to their market price and where their method of operation is different from that of the majority of security buyers.

The study goes on to say… “The wealth created by stock markets is largely attributable to large positive outcomes to relatively few stocks. Investors without a comparative advantage in identifying these few stocks are better off in a broad-based index fund.”

In our dividend growth investing strategy, we can identify the few stocks the study speaks of. Quality companies with a dividend growth record of many years skew the probability of a successful outcome in our favour. Owning the few and not the many is how we have outperformed the indexes for many decades.

The study also questions whether you need to pay for an actively managed equity portfolio at all. We tend to agree. Unless your wealth manager can consistently outperform the index (after fees), what is the point.

If you have not yet joined as a paid subscriber of the blog to receive DGI Alerts on the activity and content related to our model portfolio, it’s not too late. Click Here. 

Recent News 

TC Energy has a plan for recovery. Here’s why investors should pay attention (Globe & Mail)

https://www.theglobeandmail.com/investing/markets/inside-the-market/article-tc-energy-has-a-plan-for-recovery-heres-why-investors-should-pay/

According to the author there are at least four reasons to consider buying the stock at its beaten-up lows:

  1. The dividend yield is near the high end of its historical range and appears safe according to its payout ratio. The company also reiterated in its most recent earnings report that it plans to raise the dividend between 3-5 percent through the end of 2026.
  2. The stock is sensibly priced.
  3. All pipelines are going through the same negative sentiment in the media.
  4. The announced spin-off of its oil and natural gas pipelines might actually be a good idea.

We agree and have been buying TC Energy on the way down for our model portfolio. In the short term, we will be happy to collect the above-average and growing dividend.

To receive breaking news about companies on ‘The List’ follow us on Twitter @MagicPants_DGI.

The List (2023)

Last updated by BM on August 04, 2023

The Magic Pants List contains 27 Canadian dividend growth stocks. ‘The List’ contains Canadian companies that have raised their dividend yearly for at least the last ten years and have a market cap of over a billion dollars. Below is each stock’s symbol, name, current yield, current price, price return year-to-date, current dividend, dividend growth year-to-date and current dividend growth streak. Companies on ‘The List’ are added or subtracted once a year, on January 1. After that, ‘The List’ is set for the next twelve months. Prices and dividends are updated weekly.

SYMBOL COMPANY YLD PRICE YTD % DIV YTD % STREAK
AQN-N Algonquin Power & Utilities 6.5% $7.76 15.3% $0.51 -29.0% 12
ATD-T Alimentation Couche-Tard Inc. 0.8% $65.99 9.7% $0.56 19.1% 13
BCE-T Bell Canada 6.8% $56.28 -6.6% $3.82 5.0% 14
BIP-N Brookfield Infrastructure Partners 4.4% $32.75 5.2% $1.44 6.3% 15
CCL-B-T CCL Industries 1.7% $61.85 6.5% $1.06 10.4% 21
CNR-T Canadian National Railway 2.0% $156.45 -3.9% $3.16 7.8% 27
CTC-A-T Canadian Tire 3.9% $178.75 21.9% $6.90 17.9% 12
CU-T Canadian Utilities Limited 5.7% $31.22 -15.5% $1.79 1.0% 51
DOL-T Dollarama Inc. 0.3% $85.54 7.1% $0.27 23.8% 12
EMA-T Emera 5.4% $51.04 -3.0% $2.76 3.0% 16
ENB-T Enbridge Inc. 7.4% $48.08 -9.8% $3.55 3.2% 27
ENGH-T Enghouse Systems Limited 3.0% $28.15 -21.2% $0.85 18.2% 16
FNV-N Franco Nevada 1.0% $139.96 1.3% $1.36 6.3% 15
FTS-T Fortis 4.2% $53.74 -2.9% $2.26 4.1% 49
IFC-T Intact Financial 2.2% $196.70 0.5% $4.40 10.0% 18
L-T Loblaws 1.5% $115.90 -3.7% $1.74 10.3% 11
MGA-N Magna 3.0% $60.90 5.9% $1.84 2.2% 13
MRU-T Metro 1.7% $69.90 -7.4% $1.21 10.0% 28
RY-T Royal Bank of Canada 4.2% $128.25 0.2% $5.34 7.7% 12
SJ-T Stella-Jones Inc. 1.4% $67.05 35.2% $0.92 15.0% 18
STN-T Stantec Inc. 0.8% $90.55 38.6% $0.77 8.5% 11
TD-T TD Bank 4.4% $86.40 -1.4% $3.84 7.9% 12
TFII-N TFI International 1.1% $131.23 31.1% $1.40 29.6% 12
TIH-T Toromont Industries 1.5% $113.00 15.6% $1.68 10.5% 33
TRP-T TC Energy Corp. 7.7% $48.19 -9.6% $3.69 3.4% 22
T-T Telus Corp. 6.2% $22.97 -12.7% $1.43 7.3% 19
WCN-N Waste Connections 0.7% $141.96 7.8% $1.02 7.4% 13
Averages 3.3% 3.9% 8.4% 19

Six Canadian stocks on ‘The List’ declare earnings and dividends in US dollars and are inter-listed on a US exchange in US dollars. The simplest way to display dividend and price metrics for these stocks is to show their US exchange symbols along with their US dividends and price. The stocks I am referring to have a -N at the end of their symbols. You can still buy their Canadian counterparts (-T), but your dividends will be converted into CDN dollars and will fluctuate based on the exchange rate.

Note: When the dividend and share price currency match, the calculation is straightforward. But it’s not so simple when the dividend is declared in one currency, and the share price is quoted in another. Dividing the former by the latter would produce a meaningless result because it’s a case of apples and oranges. To calculate the yield properly, you must express the dividend and share price in the same currency.

Performance of ‘The List’

Feel free to click on this link, ‘The List’ for a sortable version from our website.

Last week, ‘The List’ was down with a YTD price return of +3.9% (capital). Dividend growth remained the same and is now at +8.4% YTD, highlighting growth in income over the past year.

The best performers last week on ‘The List’ were TC Energy Corp. (TRP-T), up +6.50%; TFI International (TFII-N), up +2.93%; and Stantec Inc. (STN-T), up +1.93%.

Brookfield Infrastructure Partners (BIP-N) was the worst performer last week, down -7.17%.

 

Dividend Increases

“The growth of dividend paying ability is of significance in the determination of a stock’s quality, or general safety…”

– Arnold Bernhard (the founder of Value Line)

“As a dividend increase is a positive sign of a company’s financial strength, the safest purchase, after research, is a stock with a recent dividend increase.”

– Tom Connolly (the founder of dividendgrowth.ca)

Last week, no dividend increases from companies on ‘The List’.

 

Earnings Releases

Benjamin Graham once remarked that earnings are the principal factor driving stock prices.

Each quarter we will provide readers with weekly earnings updates of stocks on ‘The List’ during the calendar earnings season. 

The updated earnings calendar can be found here.

Earnings growth and dividend growth tend to go hand in hand, so this information can tell us a lot about the future dividend growth of our quality companies. Monitoring our dividend growers periodically is part of the process, and reading the quarterly earnings releases is a good place to start.

Eight earnings reports from companies on ‘The List’ this week

Franco Nevada (FNV-N) will release its second-quarter fiscal 2023 results on Tuesday, August 8, 2023, after markets close.

Metro (MRU-T) will release its third-quarter fiscal 2023 results on Wednesday, August 9, 2023, before markets open.

Stella-Jones Inc. (SJ-T) will release its second-quarter fiscal 2023 results on Wednesday, August 9, 2023, before markets open.

Stantec (STN-T) will release its second-quarter fiscal 2023 results on Wednesday, August 9, 2023, after markets close.

CCL Industries (CCL-B-T) will release its second-quarter fiscal 2023 results on Wednesday, August 9, 2023, after markets close.

Algonquin Power & Utilities (AQN-T) will release its second-quarter fiscal 2023 results on Thursday, August 10, 2023, before markets open.

Canadian Tire (CTC-A-T) will release its second-quarter fiscal 2023 results on Thursday, August 10, 2023, before markets open.

Emera Inc. (EMA-T) will release its second-quarter fiscal 2023 results on Friday, August 11, 2023, before markets open.

Last week, nine companies on ‘The List’ reported earnings.

TFI International (TFII-N) released its second-quarter fiscal 2023 results on Monday, July 31, 2023, after markets closed.

“Despite a difficult freight market and reduced volumes industrywide, our results reflect the quality of our operations and our team’s skill in responding to rapidly changing market conditions. We produced solid operating ratios across all our business segments while again generating more than $200 million in net cash from operating activities. During challenging times for our industry, TFI International’s relentless focus on our longstanding operating principles, our business line diversity and niche positioning, and our ongoing progress on multiple self-help initiatives are what differentiates our performance and future potential. TFI’s strong financial foundation and focus on profitability and cash flow is allowing us to remain strategic in our allocation of capital, remaining active in M&A including seven completed acquisitions year to date, while also returning capital to shareholders through both our dividend, with our Board approving a 30% increase over the past year, and our opportunistic share repurchases. I wish to thank the talented men and women of TFI for their hard work in our continual quest to create shareholder value.”

– Alain Bedard, President and Chief Executive Officer

Highlights:

  • Second quarter operating income of $192.4 million compares to $391.0 million the same quarter last year, primarily reflecting reduced freight volumes, $60.6 million reduction in gains on sale of real estate assets held for sale, $5.8 million of IT systems and related transition expenses in U.S. LTL, $5.3 million unfavorable variance in the MTM of DSUs, $6.1 million unfavorable currency translation impact1 relative to the same period last year and $23.0 million from the divestiture of CFI.
  • Net income of $128.2 million compares to $276.8 million in Q2 2022. Diluted earnings per share (diluted “EPS”) of $1.47 compares to $3.00 in Q2 2022, due in part to the elements discussed above.
  • Adjusted net income , a non-IFRS measure, of $138.9 million compares to $241.1 million in Q2 2022, due in part to the elements discussed above.
  • Adjusted diluted EPS , a non-IFRS measure, of $1.59 compares to $2.61 in Q2 2022, due in part to the elements discussed above.
  • Net cash from operating activities of $200.4 million compares to $247.8 million in Q2 2022.
  • Free cash flow , a non-IFRS measure, of $138.1 million compares to $309.6 million in Q2 2022, with the decrease primarily driven by lower freight volumes and $89.5 million in sales of real estate in the prior year period.
  • The Company’s reportable segments performed as follows:
    • Package and Courier operating income decreased 26% to $27.1 million;
    • Less-Than-Truckload operating income decreased 57% to $80.7 million, driven primarily by weaker volume and a $54.6 million gain on real estate in the prior year quarter;
    • Truckload operating income decreased 48% to $66.2 million, driven partially by the divested CFI operations that had contributed $22.8 million in the prior year quarter, as well as a gain on sale of real estate of $6.2 million in the prior year quarter; and
    • Logistics operating income decreased 22% to $32.9 million.
  • During the quarter, TFI International acquired SM Freight which will operate in the TL segment, Launch Logistics which will operate in the Logistics segment and Placements Jonadagi which will operate in the TL segment. Subsequent to quarter end TFI International completed the acquisition of Siemens Transportation Group which will operate in the LTL segment.

Outlook:

The North American economic growth forecast from leading economists remains subdued and uncertain due to a variety of factors including elevated interest rates, high inflation, labor shortages, global supply chain challenges, and slower growth in many international markets. Despite reduced freight volumes industrywide, TFI International’s diversity across industrial and consumer end markets and across many modes of transportation, along with the Company’s disciplined approach to operations, helped support results during the second quarter. However, macro conditions have slowed and the possibility of economic recession over the coming year remains.

TFI International remains vigilant in its monitoring for new potential risks that could cause further economic disruption, resulting in additional rounds of declining freight volumes and higher costs that could adversely affect TFI’s operating companies and the markets they serve. Lower diesel prices in the months ahead could cause a continued earnings headwind. Other uncertainties include but are not limited to geopolitical risk such as the ongoing war in Ukraine, weakening labor market conditions and reduced consumer sentiment that can affect end market demand, policy changes surrounding international trade, environmental mandates, interest rate policies and changes to the tax code in any jurisdictions in which TFI International operates.

While North American economic uncertainty is likely to continue weighing on freight demand dynamics, management believes the Company is well positioned to navigate these difficult operating conditions, benefiting from its financial foundation and strong cash flow that allows for a strategic approach to the business. The Company strives for a lean cost structure and has a longstanding focus on profitability, efficiency, network density, customer service, optimal pricing, driver retention, and capacity rationalization. TFI also continues to have material synergy opportunities related to the 2021 acquisition of TForce Freight and has opportunities to enhance performance within most of its other operations. Longer term, TFI’s diverse industrial exposure through its specialized TL and LTL segments should continue to benefit from a gradual shift toward domestic manufacturing, while its P&C and Logistics business segments should benefit over the long term from the expansion of e-commerce.

Regardless of the operating environment, management’s goal is to build shareholder value through consistent adherence to its operating principles, including customer focus, an asset-light approach, and continual efforts to enhance efficiencies. In addition, TFI International values free cash flow generation and strong liquidity with a conservative balance sheet that features a high portion of attractive fixed-rate spreads and limited near-term debt maturities. This strong financial footing allows the Company to prudently invest and pursue select, accretive acquisitions while returning excess capital to shareholders.

Source: (TFII-N) Q2-2023 Earnings Release

 

Fortis (FTS-T) released its second-quarter fiscal 2023 results on Wednesday, August 2, 2023, before markets opened.

“We are pleased to report our second quarter results which reflect the growth of our utilities as they continue to execute the 2023 capital plan. Our strong financial results demonstrate the success of our regulated growth strategy, and the sale of Aitken Creek, expected to close later this year, reflects our focus on that strategy.

From an operational perspective, our systems performed well during the quarter, even when faced with extreme weather events in Western Canada. Our 2023 Sustainability Report, released today, highlights progress on our climate, diversity and other ESG priorities. The foundation of our sustainability strategy is to deliver cleaner energy to our customers by making investments in a safe, reliable energy grid without compromising on affordability.”

– David Hutchens, President and Chief Executive Officer

Highlights:

  • Second quarter net earnings of $294 million or $0.61 per common share, up from $284 million or $0.59 per common share in 2022
  • Adjusted net earnings per common share of $0.62, up from $0.57 in the second quarter of 2022
  • Capital expenditures of $2.0 billion in the first half of 2023; $4.3 billion annual capital plan on track
  • 2023 Sustainability Update Report released highlighting the Corporation’s progress on key sustainability initiatives
  • Tucson Electric Power’s rate application continues to progress with a decision anticipated in Q3

Outlook:

Fortis continues to enhance shareholder value through the execution of its capital plan, the balance and strength of its diversified portfolio of regulated utility businesses, and growth opportunities within and proximate to its service territories. While energy price volatility, global supply chain constraints, increasing interest rates and inflation represent potential concerns, the Corporation does not expect these factors to have a material impact on its operations or financial results in 2023.

Fortis is executing on the transition to a cleaner energy future and is on track to achieve its corporate-wide targets to reduce GHG emissions by 50% by 2030 and 75% by 2035. The Corporation’s additional 2050 net-zero direct GHG emissions target reinforces Fortis’ commitment to further decarbonize over the long-term, while preserving customer reliability and affordability.

The Corporation’s $22.3 billion five-year capital plan is expected to increase midyear rate base from $34.1 billion in 2022 to $46.1 billion by 2027, translating into a five-year compound annual growth rate of 6.2%.

Beyond the five-year capital plan, additional opportunities to expand and extend growth include: further expansion of the electric transmission grid in the U.S. to facilitate the interconnection of cleaner energy, including infrastructure investments associated with the Inflation Reduction Act of 2022 and the Midcontinent Independent System Operator, Inc. long-range transmission plan; climate adaptation and grid resiliency investments; renewable gas solutions and liquefied natural gas infrastructure in British Columbia; and the acceleration of cleaner energy infrastructure investments across our jurisdictions.

Fortis expects its long-term growth in rate base will drive earnings that support dividend growth guidance of 4-6% annually through 2027, and is premised on the assumptions and material factors listed under “Forward-Looking Information”.

Source: (FTS-T) Q2-2023 Quarterly Report

 

Waste Connections (WCN-N) released its second-quarter fiscal 2023 results on Wednesday, August 2, 2023, after markets closed.

“We are extremely pleased by the strength of operational execution during the quarter for a solid beat on revenue and adjusted EBITDA to deliver margins 30 basis points above our outlook.  Solid waste core pricing growth of 9.8% positioned us to expand underlying solid waste collection, transfer and disposal margins by one hundred basis points in the period, largely overcoming the ongoing headwinds from year-over-year declines in recovered commodity values and continued inflationary pressures during the period.

Our performance in the first half of 2023, along with recent acquisitions and reduced headwinds from fuel and other commodity-related impacts, positions us to increase our full year outlook for adjusted EBITDA to approximately $2.525 billion, expanding our adjusted EBITDA margin to 31.5%, up 40 basis points from our initial outlook and up 70 basis points as compared to the prior year.

The strength of our results reflects our focus on quality of revenue through the shedding of low margin volumes and furthered by strategic acquisitions, including Arrowhead, a $100 million revenue integrated transportation and disposal network with rail access providing enhanced internalization opportunities to our operations across the Northeast.  Already having completed acquisitions with over $160 million in annualized solid waste revenue year to date, we see plenty of runway and opportunity for continued activity throughout the balance of the year.  Most importantly, we are encouraged by improving trends in safety and employee retention, as we double down on human capital in our decentralized operating model, including through the realignment of our organizational structure with the addition of a sixth region and refinements to our corporate operational structure, and we look forward to driving outsized margin expansion in the second half of 2023 and into 2024.””

– Ronald J. Miittelstaedt, President and Chief Executive Officer

Highlights:

  • Top-to-bottom beat led by solid execution in Q2 sets up increases to full year 2023 outlook
  • Revenue of $2.021 billion, above outlook and up 11.3% year over year
  • Net income of $209.2 million, and adjusted EBITDA of $628.9 million, above outlook
  • Adjusted EBITDA margin of 31.1% of revenue, 30bps above outlook
  • Net income of $0.81 per share, and adjusted net income of $1.02 per share
  • Year to date net cash provided by operating activities of $1.017 billion and adjusted free cash flow of $630.0 million, or 16.1% of revenue
  • Year to date closed acquisitions with over $160 million of total annualized revenue, including Arrowhead Environmental Holdings, LLC (“Arrowhead”), the largest integrated waste-to-rail disposal network in the Northeast U.S.
  • Updates full year 2023 outlook to net income of approximately $931 million, increasing adjusted EBITDA to approximately $2.525 billion or 31.5% on revenue of approximately $8.025 billion

Outlook:

Waste Connections also updated its outlook for 2023, which assumes no change in the current economic environment or underlying economic trends.  The Company’s outlook excludes any impact from additional acquisitions that may close during the year, and expensing of transaction-related items.  The outlook provided below is forward looking, and actual results may differ materially depending on risks and uncertainties detailed at the end of this release and in our periodic filings with the U.S. Securities and Exchange Commission and the securities commissions or similar regulatory authorities in Canada. Certain components of the outlook for 2023 are subject to quarterly fluctuations.  See reconciliations in the attached tables.

  • Revenue is estimated to be approximately $8.025 billion, down $25 million from our original outlook to reflect a reduction in fuel and material surcharges of $35 million as a result of lower fuel costs.
  • Net income is estimated to be approximately $931.0 million, and adjusted EBITDA is estimated to be approximately $2.525 billion, or about 31.5% of revenue, as compared to our original outlook for adjusted EBITDA of $2.500 billion or 31.1% of revenue.
  • Capital expenditures are estimated to be approximately $950 million, up $25 million from our original outlook.
  • Net cash provided by operating activities is estimated to be approximately $2.141 billion, and adjusted free cash flow is estimated to be approximately $1.225 billion, or about 15.3% of revenue.

Source: (WCN-N) Q2-2023 Results

 

Intact Financial (IFC-T) released its second-quarter fiscal 2023 results on Wednesday, August 2, 2023, after markets closed.

“With multiple severe weather events this quarter, our employees were often first on site in affected communities, offering a reassuring presence and support to customers in a time of need. Despite the scale of the fire, flood, and freeze events, we maintained a strong balance sheet and delivered a 13% operating ROE, a testament to the resilience of our operations. We will continue to leverage our experience with natural disasters to collaborate with governments and help communities adapt to climate change.”

– Charles Brindamour, Chief Executive Officer

Highlights:

  • Operating DPW growth of 6% in Q2-2023 driven by rate actions in supportive market conditions
  • Net operating income per share decreased 30% to $2.30, largely due to an increase in catastrophe losses to $421 million, partially offset by higher investment income
  • EPS of $1.30 was lower than last year, which had benefited from the sale of Codan Denmark and large gains on equity investments
  • Combined ratio of 92.2% (96.3% undiscounted) included 8 points of catastrophe losses that were twice as high as expected, while underlying performance was strong in all geographies
  • Personal auto results were strong at a 91.2% combined ratio , reflecting our profitability actions and moderating inflation
  • Operating ROE of 12.8% (and ROE of 9.0%) despite elevated catastrophe losses and $2.5 billion of total capital margin

Outlook:

  • Over the next twelve months, we expect the firm-to-hard insurance market conditions to continue in most lines of business, driven by inflation, natural disasters, and a hard reinsurance market.
  • In Canada, we expect firm-to-hard market conditions in personal lines. Both personal property and auto premiums are expected to grow by high single-digits in response to inflation and evolving driving patterns.
  • In commercial and specialty lines across all geographies, we expect hard market conditions to continue in most lines of business.
  • In the UK&I , the personal property market is firming, with further rate increases expected.

Source: (IFC-T) Q2-2023 Quarterly Results

 

Brookfield Infrastructure Partners (BIP-N) released its second-quarter fiscal 2023 results on Thursday, August 3, 2023, before markets opened.

“Our business showcased its resilience during the second quarter, providing strong financial and operational results. We have also already accomplished most of our current year strategic initiatives, exceeding our annual deployment target and successfully executing our capital recycling program, with $1.9 billion in asset sales this year.”

– Sam Pollock, Chief Executive Officer

Highlights:

  • Brookfield Infrastructure reported net income of $378 million for the three month period ended June 30, 2023 compared to net income of $176 million in the prior year. Current year results benefited from the contribution associated with recently completed acquisitions, organic growth across our base business and realized gains on each of the six asset sales that closed in the second quarter. These positive impacts were partially offset by higher borrowing costs associated with the financing of our growth initiatives.
  • Funds from operations (FFO) for the second quarter was $552 million, increasing 8% relative to the comparable period. Results were supported by the contribution of approximately $2.1 billion of capital deployed in new acquisitions over the past year, partially offset by the impact of asset sales and borrowing costs associated with financing our new investments. Organic growth was near the high-end of our 6-9% target range, reflecting the benefit of elevated levels of inflation on tariff increases and the commissioning of approximately $1 billion in new capital projects over the last 12 months. Partially offsetting the strong underlying performance of our business was the normalization of market sensitive revenues, as the prior year benefited from elevated commodity prices.

Outlook:

We continue to find good opportunities to invest capital above our targeted return threshold. During the second quarter, we accelerated our global data center growth strategy through the acquisition of two marquee development platforms in Europe and North America, respectively. These investments fill gaps in our existing portfolio, which was regionally focused in South America, Australia and India. We now have an asset footprint in all our core markets and have become one of the largest developers in the world.

Brookfield Infrastructure continues to be successful in converting its advanced pipeline of capital recycling opportunities into completed sales. To date in this calendar year, we have secured $1.9 billion of asset sale proceeds, of which $1.4 billion has already closed. Generally, transactions are taking longer to complete and potential buyers have less access to capital. However, demand for highly contracted and essential infrastructure remains strong and we are focused on preparing for the next round of capital recycling initiatives in 2024.

Source: (BIP-N) Q2-2023 Quarterly Results

 

Bell Canada (BCE-T) released its second-quarter fiscal 2023 results on Thursday, August 3, 2023, before markets opened.

“Bell’s Q2 results demonstrate that our consistent strong execution and delivering the compelling services that our customers want and value is a winning approach.

Over the past several years, we have been laser focused on building the best networks, investing in growing our fibre footprint and delivering ever-faster mobile and Internet speeds. Bell pure fibre was ranked the fastest Internet in Canada in the Ookla Speedtest Awards report for Q1-Q2 2023, as well as the fastest Wi-Fi. We added 52,148 new net fibre customers in Q2, up 38.2% over last year, and our retail Internet net activations were up 10.2% to 24,934, our best Q2 result in 16 years. We surpassed a milestone of 10 million mobile phone subscribers, with service revenue up 4.4% on our highest Q2 postpaid net activations in 18 years. And we achieved these results against the backdrop of declining prices, demonstrating that our industry is delivering the highest quality services at decreasing prices, despite persistent inflation. Despite the continuing advertising recession across North America, our leading content and digital-first media strategy continues to pay off with Bell Media digital revenue up 20% over last year, and now comprising 33% of total Bell Media revenue.”

– Mirko Bibic, President and Chief Executive Officer

Highlights:

  • 241,516 total wireless mobile phone and mobile connected device, retail Internet and IPTV net activations, up 76.5%
  • 5% consolidated revenue growth delivered 2.1% higher adjusted EBITDA
  • Net earnings of $397 million down 39.3% with net earnings attributable to common shareholders of $329 million, or $0.37 per common share, down 44.8%; adjusted net earnings of $722 million yielded a 9.2% decrease in adjusted EPS to $0.79
  • Cash flows from operating activities down 8.9% to $2,365 million; free cash flow decreased to $1,016 million on timing of working capital and capital expenditures
  • Wireless operating momentum continues: surpassed 10 million mobile phone subscribers; wireless service revenue grew 4.4% on highest Q2 postpaid net activations in 18 years, up 33.8% to 111,282 and 79,537 mobile connected device net activations, up 79,881
  • Best Q2 retail Internet net activations since 2007, up 10.2% to 24,934; 52,148 fibre net activations, up 38.2%, delivered strong 7% residential Internet revenue growth; on pace to complete 85% of planned broadband buildout program by end of 2023
  • Bell Media digital revenue up 20% as total media revenue and adjusted EBITDA declined 1.9% and 5.3% respectively, due to ongoing advertising recession
  • Reconfirming all 2023 financial guidance targets

Outlook:

Source: (BCE-T) Q2-2023 Quarterly Results

 

Telus Corp. (T-T) released its second-quarter fiscal 2023 results on Friday, August 4, 2023, before markets opened.

“For the second quarter, our TELUS team once again demonstrated execution strength in our TTech business segment, characterized by the potent combination of leading customer growth, complemented by strong operational and financial results. Our robust performance in our core telecom business is underpinned by our globally leading broadband networks and customer-centric culture, which enabled our strongest second quarter on record, with total customer net additions of 293,000, up 19 per cent, year-over-year, driven by strong demand for our leading portfolio across Mobility and Fixed services.

At TELUS International, increasing macroeconomic pressure has temporarily impacted service demand from some of our larger tech clients as they aggressively address their own cost structures, slowing the expected rate of revenue and profit growth for 2023. In response, our TI team has actioned significant incremental cost efficiency efforts, including staff reductions, to address lower service volumes, and is driving additional automation and generative AI-enabled solutions to further optimize its cost structure and go-to-market sales opportunities. Despite these near-term challenges, we remain highly confident in TI’s strategy and investment thesis. This is amplified by meaningful opportunities in respect of digital transformation – particularly with generative AI adoption – and the continuing critical importance of differentiated digital customer experience solutions in the market, which remains a vibrant tailwind for TI’s medium- and long-term growth and profitability.”

– Darren Entwistle, President and Chief Executive Officer

Highlights:

  • Consolidated Operating revenues and other income increased by $545 million in the second quarter of 2023 and $1,227 million in the first six months of 2023.
  • Operating income decreased by $180 million in the second quarter of 2023 and $308 million in the first six months of 2023.
  • Income before income taxes decreased by $406 million in the second quarter of 2023 and $675 million in the first six months of 2023 as a result of higher Financing costs and lower Operating income. The increase in Financing costs largely resulted from greater interest on long-term debt, excluding lease liabilities as well as the impact of virtual power purchase agreements unrealized change in forward element
  • Income tax expense decreased by $104 million in the second quarter of 2023 and $193 million in the first six months of 2023.
  • Net income attributable to Common Shares decreased by $268 million in the second quarter of 2023 and $436 million in the first six months of 2023, reflecting the after-tax impacts of higher Financing costs and lower Operating income.
  • Basic EPS decreased by $0.20 or 58.8% in the second quarter of 2023 and $0.33 or 53.2% in the first six months of 2023, reflecting the after-tax impacts of higher Financing costs and lower Operating income, as well as the effect of a higher number of Common Shares outstanding.
  • During the 12-month period ended on June 30, 2023, our total telecom subscriber connections increased by 1,206,000 or 7.0%. This reflected an increase of 3.9% in mobile phone subscribers, 22.1% in connected device subscribers, 9.3% in internet subscribers, 4.7% in TV subscribers and 9.7% in security subscribers, partly offset by a decline of 2.4% in residential voice subscribers.
  • Free cash flow increased by $74 million in the second quarter of 2023 and $194 million in the first six months of 2023, primarily reflecting lower capital expenditures, partly offset by an increase in cash interest paid.

Outlook:

The assumptions for our 2023 outlook, as described in Section 9 in our 2022 annual MD&A, remain the same, except for the following:

  • Our revised estimates for 2023 economic growth in Canada, B.C., Alberta, Ontario and Quebec are 0.9%, 0.5%, 1.9%, 0.5% and 0.4%, respectively (compared to 0.6%, 0.4%, 1.5%, 0.3% and 0.5%, respectively, as reported in our 2022 annual MD&A).
  • Our revised estimates for 2023 annual inflation rates in Canada, B.C., Alberta and Ontario are 3.6%, 3.6%, 3.4% and 3.5%, respectively (compared to 3.7%, 3.7%, 3.8% and 3.6%, respectively, as reported in our 2022 annual MD&A).
  • Our revised estimates for 2023 annual unemployment rates in Canada, B.C., Alberta, Ontario and Quebec are 5.6%, 5.2%, 6.0%, 5.8% and 4.6%, respectively (compared to 6.1%, 5.6%, 5.9%, 6.6% and 5.5%, respectively, as reported in our 2022 annual MD&A).
  • Our revised estimates for 2023 annual rates of housing starts on an unadjusted basis in Canada, B.C., Alberta, Ontario and Quebec are 225,000 units, 42,000 units, 34,000 units, 80,000 units and 49,000 units, respectively (compared to 212,000 units, 34,000 units, 31,000 units, 71,000 units and 50,000 units, respectively, as reported in our 2022 annual MD&A).

Source: (T-T) Q2-2023 Quarterly Results

 

Enbridge Inc. (ENB-T) released its second-quarter fiscal 2023 results on Friday, August 4, 2023, before markets opened.

“Continuing our strong start to the year, Enbridge’s four businesses delivered another solid quarter of financial performance. Our first-choice customer service offering and operating reliability continue to result in high utilization across our systems. We continue to execute on our strategic priorities and are on track to achieve our full-year EBITDA and DCF per share guidance.”

– Greg Ebel, President and Chief Executive Officer

Highlights:

  • Second quarter GAAP earnings of $1.8 billion or $0.91 per common share, compared with GAAP earnings of $0.5 billion or $0.22 per common share in 2022
  • Adjusted earnings of $1.4 billion or $0.68 per common share, compared with $1.4 billion or $0.67 per common share in 2022
  • Adjusted earnings before interest, income taxes and depreciation and amortization (EBITDA) of $4.0 billion, an increase of 8%, compared with $3.7 billion in 2022
  • Cash provided by operating activities of $3.4 billion, compared with $2.5 billion in 2022
  • Distributable cash flow (DCF) of $2.8 billion, an increase of 1%, compared with $2.7 billion in 2022
  • Reaffirmed 2023 full year financial guidance for EBITDA and DCF and medium-term outlook
  • Planning construction of the first phase of the Rio Bravo Pipeline which will transport 2.6 bcf per day of natural gas feedstock to supply Rio Grande LNG
  • Extended and upsized the Flanagan South Pipeline (FSP) binding open season for US Gulf Coast delivery service
  • Issued $0.4 billion aggregate amount of sustainability-linked bonds (SLB) in Canada, further strengthening Enbridge’s commitment to its emissions reduction goals
  • Issued 22nd Sustainability Report, demonstrating the Company’s ongoing progress towards goals set in November 2020
  • On track to achieve Debt-to-EBITDA in the lower half of the target range by year end, providing financial flexibility and demonstrating commitment to our equity-self funding model

Outlook:

The Company reaffirms its 2023 financial guidance for EBITDA and DCF. Results for the first six months of 2023 are in line with the Company’s expectations and the Company anticipates that its businesses will continue to experience strong capacity utilization and operating performance through the balance of the year with normal course seasonality.

Strong operational performance in the first half of the year is expected to be offset by higher financing costs, due to increased interest rates, and a lower toll on the Mainline.

Source: (ENB-T) Q2-2023 Earnings Presentation

 

Magna (MGA-N) released its second-quarter fiscal 2023 results on Friday, August 4, 2023, before markets opened.

“I am pleased with our second quarter operating performance, which reflects continued strong execution on higher organic sales and cost reduction actions being taken across the company. We remain highly focused on executing our strategy and remain confident in our ability to meet our short- and long-term growth and margin outlooks.

With the closing of the Veoneer Active Safety acquisition, we have hit the ground running on integration plans and delivering synergies from the combined business.”

– Swamy Kotagiri, Chief Executive Officer

Highlights:

  • Sales of $11.0 billion for the second quarter of 2023, an increase of 17% from the second quarter of 2022, which compares to a 15% increase in global light vehicle production, including 14%, 13% and 21% higher production in North America, Europe and China, respectively. In addition to higher global production, our sales benefitted from the launch of new programs and higher sales in our Complete Vehicles segment, while the net weakening of foreign currencies against the U.S. dollar negatively impacted sales.
  • Adjusted EBIT increased to $603 million in the second quarter of 2023 compared to $358 million in the second quarter of 2022. Our focus on operational excellence and cost initiatives helped drive strong earnings on higher sales. In addition, the EBIT increase reflects losses in our Russian facilities during the second quarter of 2022, and commercial items in the second quarter of 2023 and 2022, which had a net favourable impact on a year over year basis. These were partially offset by higher production input costs net of customer recoveries, higher engineering, launch and other costs, including for new vehicle assembly business, and acquisitions, net of divestitures subsequent to the second quarter of 2022.
  • Income from operations before income taxes was $483 million for the second quarter of 2023 compared to a loss of $88 million in the second quarter of 2022, which includes Other expense, net(2) of $86 million and $426 million in the second quarters of 2023 and 2022, respectively. Excluding Other expense, net from both periods, income from operations before income taxes increased $231 million in the second quarter of 2023 compared to the second quarter of 2022.
  • Net income attributable to Magna International Inc. was $339 million for the second quarter of 2023 compared to a loss of $156 million in the second quarter of 2022, which includes Other expense, net(2), after tax of $91 million and $399 million in the second quarters of 2023 and 2022, respectively. Excluding Other expense, net, after tax from both periods, net income attributable to Magna International Inc. increased $187 million in the second quarter of 2023 compared to the second quarter of 2022.
  • Diluted earnings per share increased to $1.18 in the second quarter of 2023, compared to a loss of $0.54 in the second quarter of 2022, and Adjusted diluted earnings per share increased 81% to $1.50 in the second quarter of 2023 compared to $0.83 in the second quarter of 2022.
  • Generated cash from operations before changes in operating assets and liabilities of $879 million and used $332 million in operating assets and liabilities. Investment activities for the second quarter of 2023 included $1.48 billion to acquire Veoneer Active Safety, $502 million in fixed asset additions, a $96 million increase in investments, other assets and intangible assets, and $3 million in public and private equity investments. 

Outlook:

Source: (MGA-N) Q2-2023 Quarterly Results

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