“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: September 2023

MP Market Review – September 22, 2023

Last updated by BM on September 25, 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 +1.3% (capital). Dividend growth was up based on two dividend announcements and is now at +8.5% YTD, highlighting growth in income over the past year.
  • Last week, two dividend increases from companies on ‘The List’.
  • Last week, no earnings report from a company 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. Fortis Inc. (FTS-T) is another company on ‘The List’ that aligns very closely with this dividend growth vs price growth pattern we like to see.

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

“When CAPE is high, it tells you that the market is expensive, and future returns are likely to be lower. When it’s low, it tells you the market is cheap, and future returns are likely to be higher.”

 –  Charles Ellis, Winning the Loser’s Game: Timeless Strategies for Successful Investing

Today, we look at another one of our valuation metrics, the cyclically adjusted price-to-earnings ratio (CAPE ratio).

CAPE ratio, also known as the Shiller P/E ratio, is a widely used valuation metric in finance that aims to provide a more accurate and stable measure of a stock or market’s price relative to its earnings over an extended period. Developed by Nobel laureate Robert Shiller, this ratio has gained prominence for its ability to account for the cyclicality of economic and earnings cycles, offering investors a more comprehensive view of the market’s valuation.

Traditional price-to-earnings (P/E) ratios focus on a company’s or market’s current earnings in relation to its current stock price. While these ratios are simple to calculate and provide a snapshot of valuation, they can be highly susceptible to short-term fluctuations in earnings caused by economic cycles.

Investors and analysts use the CAPE ratio to assess whether a market or individual stocks are overvalued or undervalued. Historically, CAPE ratios have shown a strong correlation with long-term stock market returns. When the CAPE ratio is high, suggesting that stocks are expensive relative to their long-term earnings potential, subsequent market returns tend to be lower. Conversely, when the CAPE ratio is low, suggesting that stocks are cheap relative to their long-term earnings potential, subsequent market returns tend to be higher.

It’s important to note that the CAPE ratio, like any financial metric, has its limitations. It can’t predict short-term market movements, and it doesn’t account for changes in accounting standards or the unique circumstances of individual companies. Additionally, some critics argue that it may not be as relevant in today’s rapidly changing economic landscape.

In our process of discovering a ‘sensible price’, we typically look for stocks with a CAPE under 20. We calculate the CAPE by taking the average of the last ten years of a company’s earnings and dividing it by the current price. While it has its limitations, it remains a valuable tool for investors seeking to gauge the relative attractiveness of stocks and markets over the long term.

Here is ‘The List’ sorted by CAPE as of last Friday. The companies above the line meet our CAPE criteria:

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 

FORTIS INC. ANNOUNCES NEW $25 BILLION FIVE YEAR CAPITAL OUTLOOK AND 4.4% INCREASE IN FOURTH QUARTER DIVIDEND MARKING 50 YEARS OF DIVIDEND INCREASES

https://www.fortisinc.com/news-and-media/details/fortis-inc-announces-new-25-billion-five-year-capital-outlook-and-4-4-increase-in-fourth-quarter-dividend-marking-50-years-of-dividend-increases

“Our Board of Directors declared a fourth quarter dividend representing a 4.4% increase that will mark 50 years of consecutive increases in dividends paid,” said David Hutchens, President and CEO, Fortis Inc.

“This makes Fortis one of only two companies listed on the Toronto Stock Exchange to reach this significant milestone.”

“Our sustainable regulated growth strategy is focused on delivering cleaner energy that remains affordable and reliable for our customers while supporting annual dividend growth of 4-6% through 2028,” said Mr. Hutchens.

For me, discovering how many companies in Canada with ten years of consecutive dividend growth or more was a revelation on my journey to uncover the secret of wealth-building (DGI). To find those that have been doing it for five decades and counting is truly magical!

The List (2023)

Last updated by BM on September 22, 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 7.4% $6.87 2.1% $0.51 -29.0% 12
ATD-T Alimentation Couche-Tard Inc. 0.8% $70.73 17.6% $0.56 19.1% 13
BCE-T Bell Canada 7.1% $53.74 -10.8% $3.82 5.0% 14
BIP-N Brookfield Infrastructure Partners 4.4% $30.71 5.2% $1.44 6.3% 15
CCL-B-T CCL Industries 1.9% $57.08 -1.7% $1.06 10.4% 21
CNR-T Canadian National Railway 2.1% $148.52 -8.8% $3.16 7.8% 27
CTC-A-T Canadian Tire 4.7% $147.76 0.8% $6.90 17.9% 12
CU-T Canadian Utilities Limited 5.9% $30.22 -18.2% $1.79 1.0% 51
DOL-T Dollarama Inc. 0.3% $93.61 17.2% $0.27 23.8% 12
EMA-T Emera 5.5% $50.58 -3.9% $2.76 3.0% 16
ENB-T Enbridge Inc. 7.6% $46.54 -12.7% $3.55 3.2% 27
ENGH-T Enghouse Systems Limited 2.8% $29.79 -16.6% $0.85 18.2% 16
FNV-N Franco Nevada 1.0% $140.68 1.8% $1.36 6.3% 15
FTS-T Fortis Inc. 4.2% $54.36 -1.8% $2.29 5.3% 49
IFC-T Intact Financial 2.2% $199.81 2.1% $4.40 10.0% 18
L-T Loblaws 1.5% $113.05 -6.1% $1.74 10.3% 11
MGA-N Magna 3.5% $53.33 -7.3% $1.84 2.2% 13
MRU-T Metro 1.7% $71.86 -4.8% $1.21 10.0% 28
RY-T Royal Bank of Canada 4.4% $120.19 -6.1% $5.34 7.7% 12
SJ-T Stella-Jones Inc. 1.4% $64.31 29.7% $0.92 15.0% 18
STN-T Stantec Inc. 0.9% $88.59 35.6% $0.77 8.5% 11
TD-T TD Bank 4.7% $81.76 -6.7% $3.84 7.9% 12
TFII-N TFI International 1.1% $130.56 30.4% $1.40 29.6% 12
TIH-T Toromont Industries 1.5% $111.14 13.7% $1.68 10.5% 33
TRP-T TC Energy Corp. 7.5% $49.06 -8.0% $3.69 3.4% 22
T-T Telus Corp. 6.2% $22.90 -13.0% $1.43 7.4% 19
WCN-N Waste Connections 0.7% $137.57 4.4% $1.02 7.4% 13
Averages 3.4% 1.3% 8.5% 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 +1.3% (capital). Dividend growth was up on two dividend announcements and is now at +8.5% YTD, highlighting growth in income over the past year.

The best performers last week on ‘The List’ were Intact Financial (IFC-T), down -0.04%; TFI International (TFII-N), down -0.43%; and Toromont Industries (TIH-T), down –1.13%.

Magna (MGA-N) was the worst performer last week, down -6.81%.

 

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, two dividend increases from companies on ‘The List’.

Emera Inc. (EMA-T) on Wednesday said it increased its 2023 quarterly dividend from $0..69 to $0.7175 per share, payable November 15, 2023, to shareholders of record on October 31, 2023.

This represents a dividend increase of +4.0%, marking the 17th straight year of dividend growth for this quality, regulated gas and electric utility.

Fortis Inc. (FTS-T) on Thursday said it increased its 2023 quarterly dividend from $0.565 to $0.59 per share, payable December 1, 2023, to shareholders of record on November 17, 2023.

This represents a dividend increase of +4.4%, marking the 50th straight year of dividend growth for this quality, regulated gas and electric utility.

 

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, no companies on ‘The List’ reported earnings.

 

MP Market Review – September 15, 2023

Last updated by BM on September 18, 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 +4.0% (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, one earnings report from a company 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. Fortis Inc. (FTS-T) is another company on ‘The List’ that aligns very closely with this dividend growth vs price growth pattern we like to see.

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

“Investing without understanding valuation is like sailing without a map. You may get lucky, but you’re more likely to get lost.”

-Chuck Carnevale, Creator of the FASTgraphs Research Tools

Last week, we discussed the ‘Dividend Yield Theory’ as a valuation metric to assist us in determining whether our high-quality dividend growth stocks are reasonably priced. This week, we’ll delve into the concept of a company’s ‘valuation corridor’ to guide our entry and exit points.

Analyzing a company’s historical fundamentals provides valuable insights into how the business has been valued over an extended period. Many of the stocks we invest in exhibit a ‘narrow valuation corridor,’ meaning their stock prices tend to follow a path that seldom deviates from their historical trading range. Examining a company’s metrics like P/E (Price to Adjusted Operating Earnings), EBITDA (Price to Earnings Before Interest Taxes and Amortization), OCF (Price to Operating Cash Flow), and Sales (Price to Sales) ranges offers significant insights into how the company has traditionally been valued.

Making a purchase when the stock is at the lower end of this range or selling when it’s at the higher end has proven effective in managing our entry and exit points, ultimately boosting returns.

To visualize a company’s historical valuation, we utilize the Fundamental Analyzer Software Tool (FASTgraphs). Our aim is to see the stock trading within its typical ‘valuation corridor’ based on a ten-to-twelve-year timeline. This approach provides a clearer understanding of how the stock performed during various economic cycles.

We use one of our quality dividend growers on ‘The List’, Canadian National Railway (CNR-T) to demonstrate:

The ‘Black Line’ represents the price of Canadian National Railway over the past decade, while the ‘Blue Line’ indicates the Normal P/E Ratio it trades at over the same time frame. Notably, there exists a clear correlation between price and P/E for this high-quality dividend growth stock, which we refer to as our ‘valuation corridor.’ Historically, buying when the price falls below the Normal P/E Ratio (20.59) has proven to be an opportune moment to invest, and selling when the price line significantly surpasses this threshold has been a favorable time to divest.

The green dots on the graph mark our purchase points for CNR-T, while the solitary red dot represents the single instance when we decided to sell. While we typically maintain our positions in quality dividend growers exhibiting strong fundamentals, we’ve recently discovered that our returns can be further enhanced by selling when these stocks become significantly overvalued. A detailed explanation of our approach is available in our MP Wealth-Builder Model Portfolio (CDN) Business Plan, accessible to all our subscribers.

Chuck Carnevale’s guidance, akin to a map, has consistently steered us in the right direction on multiple occasions.

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 

How TFI International rose from a small Quebec trucker to a North American giant (Globe & Mail)

https://www.theglobeandmail.com/investing/markets/inside-the-market/article-how-tfi-international-rose-from-a-small-quebec-trucker-to-a-north/

“We have many great companies in Canada, some of which few people know about.

One that falls into the under-the-radar category is TFI International Inc. (TFII-T). Based in St. Laurent, a suburb of Montreal, it’s a transportation and logistics giant, whose network spans more than 80 North American cities. It has more than 90 operating companies under its banner and employs some 24,000 people.”

When I first ventured into dividend growth investing, I was pleasantly surprised by some of the companies that made it onto ‘The List’. While I was already familiar with TFI International due to my involvement with one of my operating companies, it had never appeared in the financial news. I quickly learned to appreciate the importance of analyzing cash flow when evaluating the quality of dividend growers. We initially purchased TFI International at $54 in 2020, and within just three years, our investment tripled in value! This remarkable performance led us to include it in our MP Wealth-Builder Model Portfolio (CDN) today.

What Canadians don’t understand about our economic situation – which is a lot – can hurt us (Globe & Mail)

https://www.theglobeandmail.com/business/commentary/article-what-canadians-dont-understand-about-our-economic-situation-which-is-a/

This article provides valuable insights into how many Canadians perceive the state of the economy. The author convincingly argues that a lack of deep understanding about the intricate economic forces at play in today’s world is a cause for concern. This knowledge gap compounds the challenges we face in our current economic climate, which includes issues like carbon taxes, government spending, interest rates and inflation.

The List (2023)

Last updated by BM on September 15, 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% $73.39 22.0% $0.56 19.1% 13
BCE-T Bell Canada 6.9% $55.15 -8.4% $3.82 5.0% 14
BIP-N Brookfield Infrastructure Partners 4.4% $32.72 5.2% $1.44 6.3% 15
CCL-B-T CCL Industries 1.8% $57.81 -0.4% $1.06 10.4% 21
CNR-T Canadian National Railway 2.0% $157.48 -3.3% $3.16 7.8% 27
CTC-A-T Canadian Tire 4.4% $155.29 5.9% $6.90 17.9% 12
CU-T Canadian Utilities Limited 5.7% $31.53 -14.6% $1.79 1.0% 51
DOL-T Dollarama Inc. 0.3% $95.63 19.7% $0.27 23.8% 12
EMA-T Emera 5.3% $51.83 -1.5% $2.76 3.0% 16
ENB-T Enbridge Inc. 7.5% $47.60 -10.7% $3.55 3.2% 27
ENGH-T Enghouse Systems Limited 2.7% $31.13 -12.8% $0.85 18.2% 16
FNV-N Franco Nevada 0.9% $143.87 4.1% $1.36 6.3% 15
FTS-T Fortis Inc. 4.0% $56.50 2.1% $2.26 4.1% 49
IFC-T Intact Financial 2.2% $199.89 2.1% $4.40 10.0% 18
L-T Loblaws 1.5% $115.37 -4.1% $1.74 10.3% 11
MGA-N Magna 3.2% $57.23 -0.5% $1.84 2.2% 13
MRU-T Metro 1.7% $72.78 -3.6% $1.21 10.0% 28
RY-T Royal Bank of Canada 4.3% $124.12 -3.1% $5.34 7.7% 12
SJ-T Stella-Jones Inc. 1.4% $65.12 31.3% $0.92 15.0% 18
STN-T Stantec Inc. 0.8% $90.20 38.1% $0.77 8.5% 11
TD-T TD Bank 4.6% $84.10 -4.1% $3.84 7.9% 12
TFII-N TFI International 1.1% $131.12 30.9% $1.40 29.6% 12
TIH-T Toromont Industries 1.5% $112.41 15.0% $1.68 10.5% 33
TRP-T TC Energy Corp. 7.3% $50.68 -4.9% $3.69 3.4% 22
T-T Telus Corp. 6.1% $23.27 -11.6% $1.43 7.4% 19
WCN-N Waste Connections 0.7% $141.79 7.7% $1.02 7.4% 13
Averages 3.3% 4.0% 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’

Last week, ‘The List’ was up with a YTD price return of +4.0% (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 +9.22%; Canadian National Railway (CNR-T), up +7.02%; and Fortis Inc. (FTS-T), up +5.86%.

Loblaws (L-T) was the worst performer last week, down -2.34%.

 

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, one company on ‘The List’ reported earnings.

Dollarama Inc. (ATD-T) released its second-quarter fiscal 2024 results on Wednesday, September 13, 2023, before markets opened.

“Once again this quarter, we delivered excellent operational and financial results, including notable growth in comparable store sales, EBITDA and earnings per share. Our performance year to date for this fiscal year reflects our differentiated ability to provide compelling value across our broad product mix and a consistent shopping experience. Dollarama continues to deliver unparalleled value to a growing number of consumers seeking affordable everyday products at low price points, and we expect this strong demand to persist through the second half of the year in the current macro-economic context.”

– Neil Rossy, President and CEO

Highlights:

  • 5% increase in comparable store sales
  • 8% growth in EBITDA to $457.2 million, or 31.4% of sales which represents an improvement of 1.0% compared to the same period last year
  • 3% increase in diluted net earnings per share
  • Fiscal 2024 guidance range for comparable store sales growth increased to between 10.0% to 11.0%

Outlook:

Source: (DOL-T) Q2-2024 Earnings Results

MP Market Review – September 08, 2023

Last updated by BM on September 11, 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 +1.7% (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’.
  • One company on ‘The List’ is 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. Fortis Inc. (FTS-T) is another company on ‘The List’ that aligns very closely with this dividend growth vs price growth pattern we like to see.

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

“A stock is not a purchase until it’s yield reaches the buy range established by the stock’s own unique dividend yield history.”

– Anthony Spare, Relative Dividend Yield

With the recent pullback in price last week, for companies on ‘The List’, we felt it was a good time to look at valuation using dividend yield theory as our metric.

Almost half the companies on ‘The List’ are showing a ‘sensible price’ according to dividend yield theory.

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 

Dividend investing works wonders – and now’s a great time to start with these three stocks (Globe & Mail)

https://www.theglobeandmail.com/investing/investment-ideas/article-dividend-investing-works-wonders-and-nows-a-great-time-to-start-with/

“While the primary objective of investing in these companies is to generate a steady income through dividends, many of the companies that consistently pay dividends in Canada also exhibit solid growth prospects. This dual benefit allows investors to enjoy the best of both worlds – regular income, and the potential for wealth accumulation over time.”

Some great points about the advantages of a dividend growth investing strategy in this article.

Investors should look beyond Enbridge’s enticing dividend yield (Globe & Mail)

https://www.theglobeandmail.com/investing/markets/inside-the-market/article-investors-enbridge-dividend-yield/

“Big dividends are nice – but only when they come with a rising share price.”

The author correctly points out the pitfalls of seeking out high yield dividend stocks. Let’s hope that Enbridge management knows what they are doing with their recent acquisitions.

The List (2023)

Last updated by BM on September 08, 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 7.1% $7.11 5.6% $0.51 -29.0% 12
ATD-T Alimentation Couche-Tard Inc. 0.8% $71.50 18.9% $0.56 19.1% 13
BCE-T Bell Canada 6.9% $55.28 -8.2% $3.82 5.0% 14
BIP-N Brookfield Infrastructure Partners 4.4% $31.56 5.2% $1.44 6.3% 15
CCL-B-T CCL Industries 1.8% $58.68 1.1% $1.06 10.4% 21
CNR-T Canadian National Railway 2.1% $147.15 -9.7% $3.16 7.8% 27
CTC-A-T Canadian Tire 4.5% $152.32 3.9% $6.90 17.9% 12
CU-T Canadian Utilities Limited 5.7% $31.61 -14.4% $1.79 1.0% 51
DOL-T Dollarama Inc. 0.3% $87.56 9.6% $0.27 23.8% 12
EMA-T Emera 5.5% $50.06 -4.9% $2.76 3.0% 16
ENB-T Enbridge Inc. 7.8% $45.77 -14.2% $3.55 3.2% 27
ENGH-T Enghouse Systems Limited 2.7% $31.49 -11.8% $0.85 18.2% 16
FNV-N Franco Nevada 1.0% $139.20 0.8% $1.36 6.3% 15
FTS-T Fortis Inc. 4.2% $53.37 -3.6% $2.26 4.1% 49
IFC-T Intact Financial 2.3% $193.25 -1.3% $4.40 10.0% 18
L-T Loblaws 1.5% $118.13 -1.8% $1.74 10.3% 11
MGA-N Magna 3.2% $57.33 -0.3% $1.84 2.2% 13
MRU-T Metro 1.7% $70.73 -6.3% $1.21 10.0% 28
RY-T Royal Bank of Canada 4.4% $120.10 -6.2% $5.34 7.7% 12
SJ-T Stella-Jones Inc. 1.5% $62.46 26.0% $0.92 15.0% 18
STN-T Stantec Inc. 0.9% $89.49 37.0% $0.77 8.5% 11
TD-T TD Bank 4.8% $80.63 -8.0% $3.84 7.9% 12
TFII-N TFI International 1.1% $131.63 31.5% $1.40 29.6% 12
TIH-T Toromont Industries 1.5% $110.54 13.1% $1.68 10.5% 33
TRP-T TC Energy Corp. 7.5% $49.05 -8.0% $3.69 3.4% 22
T-T Telus Corp. 6.3% $22.84 -13.2% $1.43 7.4% 19
WCN-N Waste Connections 0.7% $137.84 4.7% $1.02 7.4% 13
Averages 3.4% 1.7% 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’

Last week, ‘The List’ was down with a YTD price return of +1.7% (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 +2.57%; Metro (MRU-T), up +0.33%; and Fortis Inc. (FTS-T), down -0.06%.

Algonquin Power & Utilities (AQN-N) was the worst performer last week, down -6.82%.

 

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.

One earnings report from companies on ‘The List’ this week

Dollarama Inc. (ATD-T) will release its second-quarter fiscal 2024 results on Wednesday, September 13, 2023, before markets open.

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

Alimentation Couche-Tard Inc. (ATD-T) released its first-quarter fiscal 2024 results on Wednesday, September 6, 2023, after markets closed.

“We are pleased to announce a good first quarter of our new fiscal year, with our Canadian operations leading the way with strong performances in both convenience and fuel. Same store sales continued to grow in all Canadian business units with our packaged beverages category performing exceptionally well. Fuel volumes also grew significantly in this region. Across North America, we are seeing benefit from our promotional initiatives including reoccurring fuel days, which are contributing to volume growth. At the end of August, we had our first ever global Couche-Tard/Circle K Day with limited-time food and fuel discounts across our network from Hong Kong, to Europe, and coast to coast in North America. With inflationary conditions continuing across the globe, our focus has remained on providing value and ease to our customers both inside our stores and on our forecourts.”

– Brian Hannasch, President and CEO

Highlights:

  • Net earnings were $834.1 million, or $0.85 per diluted share for the first quarter of fiscal 2024 compared with $872.4 million, or $0.85 per diluted share for the first quarter of fiscal 2023. Adjusted net earnings1 were approximately $838.0 million compared with $875.0 million for the first quarter of fiscal 2023. Adjusted diluted net earnings per share were $0.86, representing an increase of 1.2% from $0.85 for the corresponding quarter of last year.
  • Total merchandise and service revenues of $4.3 billion, an increase of 5.0%. Same-store merchandise revenues increased by 2.1% in the United States, by 2.7% in Europe and other regions, and by 6.4% in Canada.
  • Merchandise and service gross margin increased by 0.4% in the United States to 34.3%, by 1.0% in Europe and other regions to 39.9%, and by 0.8% in Canada to 33.9%, all impacted favorably by a change in product mix.
  • Same-store road transportation fuel volumes increased by 0.7% in the United States, by 7.2% in Canada, and decreased by 1.5% in Europe and other regions.
  • Road transportation fuel gross margin of 50.05¢ per gallon in the United States, an increase of 1.05¢ per gallon, and of CA 13.25¢ per liter in Canada, a decrease of CA 0.79¢ per liter. Fuel margins remained healthy throughout the North American network, due to favorable market conditions and the continued work on the optimization of the supply chain. In Europe and other regions, the road transportation fuel margin was US 8.21¢ per liter, a decrease of US 4.05¢ per liter, mostly driven by the volatility of the global fuel market, more impactful to the Corporation’s European gross margin due to a more integrated supply chain model in this region.
  • Growth of expenses for the first quarter of fiscal 2024 was 2.9% while normalized growth of expenses was 3.7%, remaining below the average inflation observed throughout the Corporation’s network.
  • During the quarter, the Corporation reached an agreement to acquire 2,193 sites from TotalEnergies SE located in Germany, Belgium, Netherlands and Luxembourg.
  • During the first quarter of fiscal 2024, the Corporation repurchased 4.7 million shares for an amount of $230.0 million. Subsequent to the end of the first quarter of fiscal 2024 and under the share repurchase program, the Corporation repurchased 10.8 million shares through a private agreement, for an amount of $529.7 million.

Outlook:

At our 2023 Analyst and Investor Conference, we look forward to communicating our new multi-year strategic plan which will include a renewed focus on cost reduction initiatives. Finally, in terms of capital allocation, the recent private buyback transaction, which took place shortly after quarter-end, highlights a great use of our excess cash and will further enhance our key return metrics.

Source: (ATD-T) Q1-2024 Earnings Results

 

Enghouse Systems Limited (ENGH-T) released its third-quarter fiscal 2023 results on Thursday, September 7, 2023, after markets closed.

“During the third quarter of 2023, we generated an increase in revenue, operating cash flows and operating income. We also continued the integration of the recent acquisitions of Qumu Corporation (“Qumu”) and Mobil All Technologies S.A (“Navita”). Operationally, both businesses were profitable in the third quarter of 2023 with margin improvement. Although these acquisitions were still dilutive to our overall margins this quarter, we are pleased with the integration speed of these recent acquisitions and our achievements of improving Qumu, which had substantial losses over many years prior to Enghouse acquiring it and running it profitably.”

– Stephen J. Sadler, CEO

Highlights:

  • Revenue increased 8.7%, notably, while expanding our recurring revenue 13.8% to $72.3 million compared to the same period in the prior year.
  • Operating profits improved, with a 30.1% EBITDA margin.
  • Operating cash flows increased as a result of improved operating profits and cash collections.

Outlook:

Subsequent to quarter end, on August 1, 2023, Enghouse completed the acquisition of substantially all the assets of Lifesize Inc., a cloud communications company. The acquisition was completed for a purchase price of approximately USD $20.7 million, bringing our total capital deployed on acquisitions in the year to over $56.0 million as of August 1, 2023. The macroeconomic environment of increasing interest rates and a more difficult funding environment for technology companies continues to generate more acquisition opportunities for Enghouse that meet our financial and operational criteria.

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

 

Wealth-Builder Model Portfolio (CDN) – Quarterly Review – As of July 31, 2023

Last updated by BM on September 7, 2023

Summary

 

  • During the last fiscal quarter, the Magic Pants Wealth-Builder Model Portfolio (CDN) made seven transactions and added four new positions. The portfolio now consists of thirteen dividend growth companies across seven sectors of the Canadian economy.
  • With an initial capital investment of $56,922, the portfolio’s annualized income has grown to $2,152 at the end of this quarter, and our capital has an unrealized capital gain of $2,298.
  • The main goal of the portfolio is to generate growing dividends from quality Canadian companies with a track record of dividend growth.
  • The secondary goal is to build a portfolio that generates above-average total returns over the long term (5-10 years).

Background

 

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

This ‘magic pants’ analogy was from an article on dividend investing I read about a decade ago on Seeking Alpha 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.

The Magic Pants Wealth-Builder Model Portfolio (CDN) is our attempt to prove that dividend growth investing is one of the simplest and safest ways to build wealth. We believe that by following our process, an everyday investor can learn to build powerful dividend growth portfolios and eventually find that elusive pair of magic pants.

Goals and Objectives

 

Dividend growth investing is a long-term investment strategy that involves selecting quality stocks with a history of consistently increasing dividends and holding them for the long term. The goal of this strategy is to generate a steadily increasing stream of income through the reinvestment of dividends, as well as potentially realizing capital gains as the stock price appreciates over time. This can be an appealing strategy for investors looking for a reliable source of income, as well as for those seeking to grow their wealth over time.

The Magic Pants Wealth-Builder Model Portfolio (CDN) is a public, real-money, real-time portfolio demonstrating the principles and practices of dividend growth investing. The portfolio was launched on May 1, 2022, and has been managed in real-time since. Its primary goal is to generate a steadily increasing stream of dividends paid by quality Canadian companies. All the decisions to buy, hold, and sell securities are real decisions about handling money. The portfolio is intended to serve as a blueprint for constructing a dividend growth portfolio, and as a living example of how dividend growth investing works. It can be useful for illustrating goal setting, planning, stock selection, portfolio management, and other aspects of investing for those with similar goals.

With an initial capital injection of $100,000, dividend reinvestment and annual contributions of $12,000, the 10-year target is to achieve ~ $11,400 annual income by the tenth-anniversary date. The MP Wealth-Builder Model Portfolio (CDN) – Business Plan can be found here.

Quarterly Portfolio Review

 

One of our practices is to give the Magic Pants Wealth-Builder Model Portfolio (CDN) a checkup four times yearly, at the end of July, October, January and April. The basic questions are: How is the portfolio doing? Is it tracking towards its goal? How is each position doing? Should changes be made to keep the enterprise on track? We follow a formal process for portfolio reviews plus additional discussion.

To provide accountability, transparency and trust in our process, we ‘timestamp’ all our trades. We also like viewing our trades in this manner because it is easy to quickly see how we are doing and the effects a growing dividend has on price.

Every DGI Alert we’ve issued since we started our portfolio has been timestamped. We don’t hide our history. When we’re wrong, it’s right there for all to see – every win, loss, and tie.

Transactions This Quarter

 

“Your money is like a bar of soap – the more you handle it, the less you’ll have.”

There were seven purchases this quarter.

We will provide DGI alerts (timestamped) each time we buy/sell stock in our portfolio and then write an article on why.

Articles detailing the investment thesis behind our purchases can be found in the ‘Subscriber Only’ category section of our site on the right side of our home page. Here are the links:

We Just Bought More (TRP-T), (RY-T) and (CNR-T) for our MP Wealth-Builder Model Portfolio (CDN)

We Just Bought Magna International (MG-T) for our MP Wealth-Builder Model Portfolio (CDN)

We Just Bought Toromont Industries (TIH-T) for our MP Wealth-Builder Model Portfolio (CDN)

We Just Bought More Telus Corp. (T-T) for our MP Wealth-Builder Model Portfolio (CDN)

We Just Bought More TC Energy (TRP-T) for our MP Wealth-Builder Model Portfolio (CDN)

Dividend Increases Announced This Quarter

 

No companies in the portfolio announced dividend increases this quarter.

Income Paid This Quarter

 

The market may move irrationally while dividends remain much more stable, reliable and predictable.

We earned $497.21 in dividend income last quarter, almost double the quarter before! This amount gets deposited directly into our brokerage account, where we can reinvest it in quality individual dividend growth companies that are sensibly priced.

Note: When the currency of the dividend and share price 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. Franco Nevada is one such company. We bought it in CDN dollars, and it pays a USD dividend. The dividend amount above has been converted to CDN dollars.

Returns

 

Wealth-Builder Portfolio (CDN) – Business Plan Projections (Actual):

Our ‘Initial Capital’ amount for our Model Portfolio was $100,000. This is the amount we use to demonstrate our process and position sizing component. For example, an investment of 200 basis points or a position size of 2% is equal to an amount or investment of $2000. Investors wanting to invest less or more in our dividend growth strategy can then substitute the ‘Initial Capital’ amount to suit their own individual situation. Subscribers wishing to customize their ‘Initial Capital’ and ‘Annual Contributions Invested’ projections can reach out to me for a copy of the spreadsheet.

To date we have invested $56,922 of our initial capital as per our business plan. That leaves us with uninvested capital for this fiscal year of $25,078 ($82,000-$56,922) plus dividends collected.

Since inception, our income has grown to an annualized amount of $2,152 and our capital has seen a rise of $2,298. Our income aligns closely with our projections, but not being fully invested (as per our business plan), our capital gain and portfolio value are behind projections. On the positive side, we were able to invest ~16K of our capital in the first quarter of our fiscal year (May – July) and if we are correct in our macro analysis, the rest of fiscal 2023 should be an opportune time to get fully invested. We are also tracking a higher starting yield and dividend growth rate than we budgeted for.

Return Calculation:

We reviewed several different calculations to come up with a fair representation of total return. After consultation with portfolio management professionals, we have now decided upon the monthly ‘Modified Dietz Return’ formula to calculate our portfolio returns going forward.

The ‘Modified Dietz Return’ calculates the monthly rate of return of an investment portfolio which includes the cashflows in and out of the portfolio. The method accounts for the timing of when the cash flows come in and out of the portfolio in order to properly weigh the impact of these cash flows on the portfolio’s return.

At present we do not incorporate the returns of our uninvested cash positions as part of our portfolio returns only contributions and withdrawals and of course our dividends.

Wrap Up

 

Our income is growing, and our initial invested capital is safe and growing as well. We still have lots of ‘dry powder’ (cash) to invest when the opportunities arise.

One of the highlights of the past quarter was our investment in Magna International (MG-T).

This is an example of the Real Time DGI Alerts that Subscribers receive when we buy/sell a position in the Wealth-Builder Model Portfolio (CDN).

The stock price is up almost 30% since we bought it and the company’s increase on guidance, in its most recent quarterly report, is an indicator that better times are ahead.

“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

Our most challenging purchases were with TC Energy (TRP-T). We initiated our three-dot rule (buy incrementally three times and stop) with this stock to dollar cost average into a position size on the way down. Unfortunately, we did not execute on the fourth dot as (TRP-T) went as low as $45 before rebounding nicely to the $48 level, which was our last purchase. We still believe strongly in this company and are looking for our investment thesis to play out later in the year or early in 2024. In the short run we will be happy with our growing ~7.5% yield.

“The combination of top-tier asset and contract quality, regulatory protection on existing pipelines, attractive near- and long-term pipeline projects, and a vast, diverse pipeline network allows TC Energy to generate durable excess returns on invested capital…TC Energy’s assets are some of the highest-quality assets we cover.”

Source: Morningstar on TC Energy

Although it is difficult to stay disciplined when the markets are volatile, we continue to believe in our process and fifteen months into our business plan, the results speak for themselves.

P.S. Enjoy your growing income and don’t forget to ‘Front Load The Fun’!

Please don’t hesitate to reach out to us anytime with your comments or questions to info@magicpants.ca .

MP Market Review – September 01, 2023

Last updated by BM on September 04, 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, 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. Fortis Inc. (FTS-T) is another company on ‘The List’ that aligns very closely with this dividend growth vs price growth pattern we like to see.

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

“If a portfolio manager has pressure to succeed in the short term, they will likely make suboptimal long-term decisions.”

– Tom Connolly, dividendgrowth.ca blog

Because of the strong focus on short-term results, many portfolio managers fail to establish investment processes conducive to achieving long-term outcomes.

Tom Connolly believes that they behave this way in fear of losing their jobs (career risk). They are forced to buy/do what other professionals do so they won’t be wrong. They all fail together. Patrick Keogh of Make Your Family Rich fame believes their lawyers won’t let them invest in a concentrated portfolio of equities for fear of being sued. Whatever you believe, the results of this industry have been dismal.

Another study, which can be found in the ‘Recent News’ section below, reaffirms what we already know. Due to a combination of high fees and poor security selection, the vast majority of portfolio managers underperform their benchmarks over extended periods.

Study results:

  • 84 percent underperformance over three years
  • 93 percent underperformance over five years
  • 95 percent underperformance over twenty years

For those genuinely interested in changing this narrative, please keep an eye on your inbox later this week. I will be sending a ‘Subscriber Only’ article regarding the quarterly performance of our Wealth-Builder Model Portfolio (CDN) after just fifteen months. By focusing on growing cash flow (income) in the short term our companies deliver above-average capital returns down the road. That is how we win!

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 boost investment income and diversification? Consider dividend ETFs (Globe & Mail)

https://www.theglobeandmail.com/investing/markets/etfs/article-want-to-boost-investment-income-and-diversification-consider-dividend/

“You want to go underneath the hood to really understand what you are investing in, and the underlying methodology used in selecting stocks,” Mr. Heakes says.

Stay clear of dividend funds and ETFs that are focused on yield. It is very difficult to find one that uses a ‘quality first’ methodology in selecting stocks. That is why dividend growth investors build their own portfolios.

Why the TSX is set to outperform U.S. stocks over the next 10 years (Globe & Mail)

https://www.theglobeandmail.com/investing/investment-ideas/article-why-the-tsx-is-set-to-outperform-us-stocks-over-the-next-10-years/

The most interesting part of this article for me was the reference to a recent S&P Dow Jones publication that confirmed the results of many previous papers on the subject. Owing to a combination of high fees and adverse security selection, the vast majority of fund managers underperform their benchmark over the long term.

“According to the report, 52 per cent of funds in Canada underperformed their benchmark in 2022. This figure increased to 84 per cent over a three-year period and finally 93 per cent over the past five years. In the U.S., the study went back 20 years, and indeed even greater underperformance occurred, with 95 per cent of funds tracking the S&P 500 not meeting their benchmark.”

Unfortunately for most, they will assume that the alternative is to purchase a low-cost ETF that tracks the benchmark. Fortunately for dividend growth investors we know better.

The List (2023)

Last updated by BM on September 01, 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 6.6% $7.63 13.4% $0.51 -29.0% 12
ATD-T Alimentation Couche-Tard Inc. 0.8% $72.39 20.4% $0.56 19.1% 13
BCE-T Bell Canada 6.8% $56.40 -6.4% $3.82 5.0% 14
BIP-N Brookfield Infrastructure Partners 4.4% $32.25 5.2% $1.44 6.3% 15
CCL-B-T CCL Industries 1.7% $60.84 4.8% $1.06 10.4% 21
CNR-T Canadian National Railway 2.1% $153.91 -5.5% $3.16 7.8% 27
CTC-A-T Canadian Tire 4.3% $159.48 8.8% $6.90 17.9% 12
CU-T Canadian Utilities Limited 5.6% $32.28 -12.6% $1.79 1.0% 51
DOL-T Dollarama Inc. 0.3% $88.57 10.9% $0.27 23.8% 12
EMA-T Emera 5.4% $51.27 -2.6% $2.76 3.0% 16
ENB-T Enbridge Inc. 7.3% $48.30 -9.4% $3.55 3.2% 27
ENGH-T Enghouse Systems Limited 2.8% $30.70 -14.0% $0.85 18.2% 16
FNV-N Franco Nevada 0.9% $143.54 3.9% $1.36 6.3% 15
FTS-T Fortis 4.2% $53.40 -3.5% $2.26 4.1% 49
IFC-T Intact Financial 2.3% $193.99 -0.9% $4.40 10.0% 18
L-T Loblaws 1.5% $118.57 -1.5% $1.74 10.3% 11
MGA-N Magna 3.1% $58.95 2.5% $1.84 2.2% 13
MRU-T Metro 1.7% $70.50 -6.6% $1.21 10.0% 28
RY-T Royal Bank of Canada 4.3% $122.85 -4.0% $5.34 7.7% 12
SJ-T Stella-Jones Inc. 1.4% $65.53 32.2% $0.92 15.0% 18
STN-T Stantec Inc. 0.8% $90.85 39.1% $0.77 8.5% 11
TD-T TD Bank 4.6% $83.27 -5.0% $3.84 7.9% 12
TFII-N TFI International 1.0% $137.53 37.4% $1.40 29.6% 12
TIH-T Toromont Industries 1.5% $112.63 15.3% $1.68 10.5% 33
TRP-T TC Energy Corp. 7.5% $49.51 -7.1% $3.69 3.4% 22
T-T Telus Corp. 6.0% $23.81 -9.5% $1.43 7.4% 19
WCN-N Waste Connections 0.7% $139.29 5.8% $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’

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 TFI International (TFII-N), up +8.01%; Canadian Tire (CTC-A-T), up +4.49%; and Enghouse Systems Limited (ENGH-T), up +4.17%.

Intact Financial (IFC-T) was the worst performer last week, down -0.35%.

 

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

Alimentation Couche-Tard Inc. (ATD-T) will release its first-quarter fiscal 2024 results on Wednesday, September 6, 2023, after markets close.

Enghouse Systems Limited (ENGH-T) will release its third-quarter fiscal 2023 results on Thursday, September 7, 2023, after markets close.

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

 

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

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