“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.”

MP Market Review – November 22, 2024

Last updated by BM on November 26, 2024

Summary

 

This is a weekly installment of our MP Market Review series, which provides insights and updates on Canadian dividend growth companies we monitor on ‘The List’. To read all our newsletters and premium content be sure to check us out on magicpants.substack.com.

  • This week, we ask: Should retirees choose dividend stocks over bonds?
  • Last week, dividend growth of ‘The List’ stayed the course and has increased by +9.1% YTD (income).
  • Last week, the price of ‘The List’ was up with a return of +13.6% YTD (capital).
  • Last week, there were no dividend announcements from companies on ‘The List’.
  • Last week, there was an earnings report from a company on ‘The List’.
  • This week, one company on ‘The List’ is due to report earnings.

DGI Clipboard

 

“Cash is not a safe investment, is not a safe place because it will be taxed by inflation.”

– Ray Dalio

The Question Isn’t When You Retire But How!
Intro

 

A couple of months ago, in the ‘DGI Clipboard’ section of our weekly newsletter, I wrote about How to Own Inflation: Why Dividend Growth is the True Hedge. In that article, I demonstrated how inflation erodes purchasing power and explained why owning a portfolio of dividend growth stocks is one of the best ways to combat this challenge. Unlike bonds and T-bills, which don’t grow their income over time, a dividend growth portfolio not only increases its income but appreciates in value—this was the key point we emphasized.

This week, The Globe and Mail published a column exploring a similar theme. It compared the performance of dividend growth stocks to bonds and T-bills over the past 25 years, posing the question: Should retirees buy dividend stocks instead of bonds?

First a little column background:

To answer the question with historical data, the author picked the year 1999 as a starting point and created both a bond portfolio and a stock portfolio. This year was particularly favorable for government bonds, as yields were high and on a downward trajectory, benefiting bond prices. However, it was a challenging starting point for stocks due to the significant market disruptions that followed: the dot-com bubble burst in 2001-2002, the Great Recession of 2008-2009, and the sharp but short-lived market downturn during the early months of the COVID-19 pandemic.

The $50,000 stock portfolio was allocated across three companies: BCE-T (a telecom), TD-T (a Big Five bank), and ENB-T (a pipeline in the energy sector). While not necessarily the top performers in their sectors, these companies were chosen for their reputation as reliable dividend payers and provided some diversification.

The bond portfolio also consisted of $50,000, invested in long-term Canadian government bonds purchased in 1999. At the time, these bonds offered a yield of over 6%, which was locked in for the full 25-year term.

As a third option, the author also included 91-day Treasury bills (T-bills).

The author brilliantly proves his point with just two charts, leaving you to question the appeal of fixed income for long-term retirement investing.

Stocks (dividend growth stocks) are the clear winner in both income and capital growth. We already know it’s the growing income/yield that drives total return. Soon many others will do what we do.

By year 25, your initial $50K investment yields $16K annually in dividends—a 32% return on the original amount in this year alone—and it’s still growing!

Wrap Up

 

The charts in this article can be replicated for any period over the last twenty years using other quality dividend growth stocks from ‘The List.’ While we don’t recommend holding just three stocks, a diversified portfolio of 15-20 quality dividend growers would yield similar results. There is no need for an ETF, a wealth manager or an adviser.

Investing in the stock market doesn’t have to be a high-risk endeavor. Our growing yield strategy is ‘how’ to play the long-term horizon of retirement investing. Purchasing individual, quality dividend growth stocks at sensible valuations and holding them for their steadily growing income remains one of the most effective strategies to preserve purchasing power and achieve above-average total returns.

The complete Globe and Mail article referenced above is available for Globe subscribers in the ‘DGI News’ section later in this newsletter.

DGI Scorecard

 
The List (2024)

 

The Magic Pants 2024 list includes 28 Canadian dividend growth stocks. Here are the criteria to be considered a candidate on ‘The List’:

  1. Dividend growth streak: 10 years or more.
  2. Market cap: Minimum one billion dollars.
  3. Diversification: Limit of five companies per sector, preferably two per industry.
  4. Cyclicality: Exclude REITs and pure-play energy companies due to high cyclicality.

Based on these criteria, companies are added or removed from ‘The List’ annually on January 1. Prices and dividends are updated weekly.

‘The List’ is not a portfolio; it is a coaching tool that helps us think about ideas and risk manage our model portfolio. We own some but not all the companies on ‘The List’.

Our newsletter provides readers with a comprehensive insight into the implementation and advantages of our Canadian dividend growth investing strategy. This evidence-based, unbiased approach empowers DIY investors to outperform both actively managed dividend funds and passively managed indexes and dividend ETFs over longer-term horizons.

For those interested in something more, please upgrade to a paid subscriber; you get the enhanced weekly newsletter, access to premium content, full privileges on the new Substack website magicpants.substack.com and DGI alerts whenever we make stock transactions in our model portfolio.

Performance of ‘The List’

 

Last week, dividend growth of ‘The List’ stayed the course and has increased by +9.1% YTD (income). How much did your salary go up this year?

Last week, the average price return of ‘The List’ was up with a return of +13.6% YTD (capital).

Even though prices may fluctuate, the dependable growth in our income does not. Stay the course. You will be happy you did.

Last week’s best performers on ‘The List’ were Franco Nevada (FNV-N), up +8.55%; Metro Inc. (MRU-T), up +3.76%; and Stella-Jones Inc. (SJ-T), up +3.71%.

Canadian Tire (CTC-A-T) was the worst performer last week, down -1.82%.

SYMBOL COMPANY YLD PRICE YTD % DIV YTD % STREAK
ATD-T Alimentation Couche-Tard Inc. 0.9% $78.59 2.4% $0.70 17.4% 14
BCE-T Bell Canada 10.7% $37.42 -30.9% $3.99 3.1% 15
BIP-N Brookfield Infrastructure Partners 4.7% $34.74 13.2% $1.62 5.9% 16
CCL-B-T CCL Industries Inc. 1.5% $77.68 34.3% $1.16 9.4% 22
CNR-T Canadian National Railway 2.2% $155.44 -6.8% $3.38 7.0% 28
CTC-A-T Canadian Tire 4.7% $150.16 8.3% $7.00 1.4% 13
CU-T Canadian Utilities Limited 5.0% $36.10 12.4% $1.81 0.9% 52
DOL-T Dollarama Inc. 0.2% $145.51 53.1% $0.35 30.7% 13
EMA-T Emera 5.5% $51.92 2.2% $2.88 3.3% 17
ENB-T Enbridge Inc. 6.1% $60.47 24.9% $3.66 3.1% 28
ENGH-T Enghouse Systems Limited 3.4% $29.27 -13.8% $1.00 18.3% 17
FNV-N Franco Nevada 1.2% $123.69 12.3% $1.44 5.9% 16
FTS-T Fortis Inc. 3.8% $63.13 15.1% $2.39 4.4% 50
IFC-T Intact Financial 1.8% $271.68 33.6% $4.84 10.0% 19
L-T Loblaw Companies Limited 1.1% $178.29 38.7% $1.92 10.0% 12
MFC-T Manulife Financial 3.5% $45.37 57.1% $1.60 9.6% 10
MGA-N Magna 4.2% $45.08 -18.8% $1.90 3.3% 14
MRU-T Metro Inc. 1.5% $89.73 31.0% $1.34 10.7% 29
RY-T Royal Bank of Canada 3.3% $174.71 31.3% $5.72 7.1% 13
SJ-T Stella-Jones Inc. 1.6% $70.69 -7.7% $1.12 21.7% 19
STN-T Stantec Inc. 0.7% $120.06 14.7% $0.83 7.8% 12
T-T Telus 7.2% $21.26 -10.4% $1.53 7.1% 20
TD-T TD Bank 5.2% $78.51 -7.3% $4.08 6.3% 13
TFII-N TFI International 1.1% $148.73 13.4% $1.60 10.3% 13
TIH-T Toromont Industries 1.6% $116.74 3.5% $1.92 11.6% 34
TRI-N Thomson Reuters 1.3% $161.20 12.5% $2.16 12.5% 30
TRP-T TC Energy Corp. 5.5% $69.65 33.1% $3.84 3.2% 23
WCN-N Waste Connections 0.6% $189.87 28.2% $1.17 11.4% 14
Averages 3.2% 13.6% 9.1% 21

Note: Stocks ending in “-N” declare earnings and dividends in US dollars. To achieve currency consistency between dividends and share price for these stocks, we have shown dividends in US dollars and share price in US dollars (these stocks are listed on a US exchange). The dividends for their Canadian counterparts (-T) would be converted into CDN dollars and would fluctuate with the exchange rate.

PAID subscribers enjoy full access to our enhanced weekly newsletter, premium content, and easy-to-follow trade alerts so they can build DGI portfolios alongside ours. This service provides the resources to develop your DGI business plan confidently. We do the work; you stay in control!

It truly is the subscription that pays dividends!

The greatest investment you can make is in yourself. Are you ready to take that step? 

For more articles and the full newsletter, check us out on magicpants.substack.com.

MP Market Review – November 15, 2024

Last updated by BM on November 19, 2024

Summary

 

This is a weekly installment of our MP Market Review series, which provides insights and updates on Canadian dividend growth companies we monitor on ‘The List’. To read all our newsletters and premium content be sure to check us out on magicpants.substack.com.

  • This week, we reveal our ‘Timely Ten’ most undervalued dividend growth companies.
  • Last week, dividend growth of ‘The List’ was up and has increased by +9.1% YTD (income).
  • Last week, the price of ‘The List’ was down with a return of +12.2% YTD (capital).
  • Last week, there were no dividend announcements from companies on ‘The List’.
  • Last week, there were three earnings reports from companies on ‘The List’.
  • This week, one company on ‘The List’ is due to report earnings.

DGI Clipboard

 

“Some of the most undervalued assets on Wall Street are history books.”

-Morgan Housel, author of The Psychology of Money

Timely Ten: Expanding Our Investable Universe
Intro

 

This month, we’ve expanded our ‘Timely Ten’ to include a selection of U.S. companies we actively monitor. While we track far more than the 30 U.S. companies featured on this list, we’ve streamlined it for consistency with our Canadian counterpart. Broadening your investable universe offers no shortage of compelling opportunities to consider.

Here’s a recap on how we select our ‘Timely Ten’:

Step three in our process involves monitoring our quality dividend growers regularly, which can become quite challenging depending on the number of companies we track. Fortunately, we rely on ‘The List’ instead of the vast array of stocks in the index, which streamlines our task. Nevertheless, we continually seek methods to enhance our efficiency. Through dividend yield theory, we’ve discovered an approach that has proven remarkably effective in aiding us with our efforts over the years.

Dividend yield theory is a simple and intuitive approach to valuing dividend growth stocks. It suggests that the dividend yield of quality dividend growth stocks tends to revert to the mean over time, assuming that the underlying business model remains stable. In practical terms, if a stock pays a dividend yield above its ten-year average annual yield, its price will likely increase to return the yield to its historical average. Knowing that price and yield go in opposite directions, this theory helps us find stocks poised for a positive price correction.

We have pre-screened our candidates using the criteria we initially laid out in building ‘The List’. This helps us considerably narrow the universe of investable stocks.

  1. Dividend growth streak: 10 years or more.
  2. Market cap: Minimum one billion dollars.
  3. Diversification: Limit of five companies per sector, preferably two per industry.
  4. Cyclicality: Exclude REITs and pure-play energy companies due to high cyclicality.

Next, we rank ‘The List’ by how significantly each stock is priced below its fair value (Low Price), as calculated using dividend yield theory. To determine fair value, divide the current dividend by what you consider to be the stock’s historically high yield.

All companies above the thick black line have a current price below fair value (sensibly priced). The stocks above the thick black line make up our ‘Timely Ten’.

Wrap Up

 

When making investment decisions, always prioritize a company’s ‘quality’ over a ‘sensible price’. For more details on stock selection and our quality indicators, refer to our sample Business Plan.

If you’re a new investor looking to build positions in the ‘Timely Ten,’ now is the perfect opportunity to start your research and take action. For a more guided approach, consider becoming a PAID subscriber to gain access to DGI Alerts, which notify you whenever we make a trade in our model portfolios, allowing you to invest alongside us with confidence.

DGI Scorecard

 
The List (2024)

 

The Magic Pants 2024 list includes 28 Canadian dividend growth stocks. Here are the criteria to be considered a candidate on ‘The List’:

  1. Dividend growth streak: 10 years or more.
  2. Market cap: Minimum one billion dollars.
  3. Diversification: Limit of five companies per sector, preferably two per industry.
  4. Cyclicality: Exclude REITs and pure-play energy companies due to high cyclicality.

Based on these criteria, companies are added or removed from ‘The List’ annually on January 1. Prices and dividends are updated weekly.

‘The List’ is not a portfolio; it is a coaching tool that helps us think about ideas and risk manage our model portfolio. We own some but not all the companies on ‘The List’.

Our newsletter provides readers with a comprehensive insight into the implementation and advantages of our Canadian dividend growth investing strategy. This evidence-based, unbiased approach empowers DIY investors to outperform both actively managed dividend funds and passively managed indexes and dividend ETFs over longer-term horizons.

For those interested in something more, please upgrade to a paid subscriber; you get the enhanced weekly newsletter, access to premium content, full privileges on the new Substack website magicpants.substack.com and DGI alerts whenever we make stock transactions in our model portfolio.

Performance of ‘The List’

 

Last week, dividend growth of ‘The List’ was up slightly and has increased by +9.1% YTD (income). How much did your salary go up this year?

Last week, the average price return of ‘The List’ was down with a return of +12.2% YTD (capital).

Even though prices may fluctuate, the dependable growth in our income does not. Stay the course. You will be happy you did.

Last week’s best performers on ‘The List’ were Manulife Financial (MFC-T), up +4.09%; Stantec Inc. (STN-T), up +3.42%; and Alimentation Couche-Tard Inc. (ATD-T), up +3.04%.

Franco Nevada (FNV-N) was the worst performer last week, down -6.93%.

SYMBOL COMPANY YLD PRICE YTD % DIV YTD % STREAK
ATD-T Alimentation Couche-Tard Inc. 0.9% $79.37 3.4% $0.70 17.4% 14
BCE-T Bell Canada 10.6% $37.81 -30.2% $3.99 3.1% 15
BIP-N Brookfield Infrastructure Partners 4.7% $34.20 11.4% $1.62 5.9% 16
CCL-B-T CCL Industries Inc. 1.5% $77.12 33.3% $1.16 9.4% 22
CNR-T Canadian National Railway 2.2% $153.35 -8.1% $3.38 7.0% 28
CTC-A-T Canadian Tire 4.6% $152.95 10.4% $7.00 1.4% 13
CU-T Canadian Utilities Limited 5.2% $34.98 8.9% $1.81 0.9% 52
DOL-T Dollarama Inc. 0.2% $148.07 55.8% $0.35 30.7% 13
EMA-T Emera 5.7% $50.76 -0.1% $2.88 3.3% 17
ENB-T Enbridge Inc. 6.2% $59.40 22.7% $3.66 3.1% 28
ENGH-T Enghouse Systems Limited 3.4% $29.60 -12.9% $1.00 18.3% 17
FNV-N Franco Nevada 1.3% $113.95 3.5% $1.44 5.9% 16
FTS-T Fortis Inc. 3.8% $62.21 13.4% $2.39 4.4% 50
IFC-T Intact Financial 1.8% $266.26 31.0% $4.84 10.0% 19
L-T Loblaw Companies Limited 1.1% $181.49 41.2% $1.92 10.0% 12
MFC-T Manulife Financial 3.5% $46.05 59.5% $1.60 9.6% 10
MGA-N Magna 4.3% $43.90 -20.9% $1.90 3.3% 14
MRU-T Metro Inc. 1.5% $86.48 26.2% $1.34 10.7% 29
RY-T Royal Bank of Canada 3.3% $171.13 28.6% $5.72 7.1% 13
SJ-T Stella-Jones Inc. 1.6% $68.16 -11.0% $1.12 21.7% 19
STN-T Stantec Inc. 0.7% $116.00 10.8% $0.83 7.8% 12
T-T Telus 7.2% $21.39 -9.8% $1.53 7.1% 20
TD-T TD Bank 5.2% $78.80 -7.0% $4.08 6.3% 13
TFII-N TFI International 1.1% $143.66 9.5% $1.60 10.3% 13
TIH-T Toromont Industries 1.6% $117.34 4.0% $1.92 11.6% 34
TRI-N Thomson Reuters 1.3% $161.71 12.8% $2.16 12.5% 30
TRP-T TC Energy Corp. 5.6% $69.05 32.0% $3.84 3.2% 23
WCN-N Waste Connections 0.6% $183.50 23.9% $1.17 11.4% 14
Averages 3.2% 12.2% 9.1% 21

Note: Stocks ending in “-N” declare earnings and dividends in US dollars. To achieve currency consistency between dividends and share price for these stocks, we have shown dividends in US dollars and share price in US dollars (these stocks are listed on a US exchange). The dividends for their Canadian counterparts (-T) would be converted into CDN dollars and would fluctuate with the exchange rate.

For more articles and the full newsletter, check us out on magicpants.substack.com. Don’t miss this opportunity to stay informed and make the most of your investments!

MP Market Review – November 8, 2024

Last updated by BM on November 12, 2024

Summary

 

This is a weekly installment of our MP Market Review series, which provides insights and updates on Canadian dividend growth companies we monitor on ‘The List’. To read all our newsletters and premium content be sure to check us out on magicpants.substack.com.

  • This week, we reveal the performance of our MP Wealth Builder Model Portfolio (USA).
  • Last week, dividend growth of ‘The List’ stayed the same and has increased by +9.0% YTD (income).
  • Last week, the price of ‘The List’ was up with a return of +13.0% YTD (capital).
  • Last week, there were two dividend announcements from companies on ‘The List’.
  • Last week, there were fourteen earnings reports from companies on ‘The List’.
  • This week, three companies on ‘The List’ are due to report earnings.

DGI Clipboard

 

”Missing the train” vs. ”losing your money”. There are a lot of trains, but if your money is gone, it’s over.

– Paul Tudor Jones

Growing Dividends, Growing Wealth: The Strong Returns of Our U.S. Portfolio
Intro

 

Major indices, including the S&P 500 and Dow Jones, have surged to new highs, reflecting investor optimism around the incoming Trump administration’s economic policies. Here in Canada, our markets experienced a similar boost following Donald Trump’s election victory, but our markets never seem to quite keep up.

This week, I’m excited to welcome our new subscribers from south of the border! Our reach is growing, and while much of our analysis focuses on Canadian dividend growth companies, the principles of dividend growth investing are just as relevant in the U.S. as they are in Canada. The key difference? The U.S. market offers roughly ten times the number of quality dividend growth companies to invest in.

In this edition of the MP Market Review, readers will get a sneak peek at our soon-to-be-public MP Wealth-Builder Model Portfolio (USA). I launched this portfolio for family and friends in May 2023, following a business plan similar to the one in our ‘Premium Content’ section. The main difference lies in the position sizing strategy. When I post the portfolio performance to the blog, I will include the U.S. business plan as well.

To provide accountability, transparency, and trust in our process, we ‘timestamp’ all our trades. Each quarter, we show each purchase transaction to date to see how we are doing and the effects a growing dividend has on price. We don’t hide our history. When we’re wrong, it’s right there for all to see – every win, loss, and tie.

Portfolio To Date (USA)

To date, we’ve invested in thirteen high-quality dividend growth companies spanning seven U.S. sectors. Our strategy prioritizes top-tier companies within each sector, ensuring focused yet ample diversification.

Wrap Up

 

Since inception, our USA portfolio has achieved an impressive 25% annualized return (including dividends) without the volatility of FANG or AI stocks. This highlights the strength of our strategy to grow income and capital steadily while delivering above-average total returns.

For American investors, our approach mirrors the favourable tax treatment of eligible Canadian dividends that Canadians enjoy, making it an attractive option to explore. While I’ll begin posting performance updates for the USA portfolio on the blog, I won’t have time to write detailed articles about every trade. However, I’m happy to send timely trade alerts to those interested. Let me know in the comments section if this is something of interest to you.

DGI Scorecard

 
The List (2024)

 

The Magic Pants 2024 list includes 28 Canadian dividend growth stocks. Here are the criteria to be considered a candidate on ‘The List’:

  1. Dividend growth streak: 10 years or more.
  2. Market cap: Minimum one billion dollars.
  3. Diversification: Limit of five companies per sector, preferably two per industry.
  4. Cyclicality: Exclude REITs and pure-play energy companies due to high cyclicality.

Based on these criteria, companies are added or removed from ‘The List’ annually on January 1. Prices and dividends are updated weekly.

‘The List’ is not a portfolio; it is a coaching tool that helps us think about ideas and risk manage our model portfolio. We own some but not all the companies on ‘The List’.

Our newsletter provides readers with a comprehensive insight into the implementation and advantages of our Canadian dividend growth investing strategy. This evidence-based, unbiased approach empowers DIY investors to outperform both actively managed dividend funds and passively managed indexes and dividend ETFs over longer-term horizons.

For those interested in something more, please upgrade to a paid subscriber; you get the enhanced weekly newsletter, access to premium content, full privileges on the new Substack website magicpants.substack.com and DGI alerts whenever we make stock transactions in our model portfolio.

Performance of ‘The List’

 

Last week, dividend growth of ‘The List’ stayed the same and has increased by +9.0% YTD (income). How much did your salary go up this year?

Last week, the average price return of ‘The List’ was up with a return of +13.0% YTD (capital).

Even though prices may fluctuate, the dependable growth in our income does not. Stay the course. You will be happy you did.

Last week’s best performers on ‘The List’ were TFI International (TFII-N), up +10.21%; Manulife Financial (MFC-T), up +7.56%; and Alimentation Couche-Tard Inc. (ATD-T), up +5.46%.

Stella-Jones Inc. (SJ-T) was the worst performer last week, down -16.81%.

SYMBOL COMPANY YLD PRICE YTD % DIV YTD % STREAK
ATD-T Alimentation Couche-Tard Inc. 0.9% $77.03 0.4% $0.70 17.4% 14
BCE-T Bell Canada 10.1% $39.49 -27.1% $3.99 3.1% 15
BIP-N Brookfield Infrastructure Partners 4.7% $34.29 11.7% $1.62 5.9% 16
CCL-B-T CCL Industries Inc. 1.4% $81.19 40.4% $1.16 9.4% 22
CNR-T Canadian National Railway 2.2% $154.15 -7.6% $3.38 7.0% 28
CTC-A-T Canadian Tire 4.5% $154.00 11.1% $7.00 1.4% 13
CU-T Canadian Utilities Limited 5.2% $34.64 7.8% $1.81 0.9% 52
DOL-T Dollarama Inc. 0.2% $151.00 58.9% $0.35 29.5% 13
EMA-T Emera 5.7% $50.19 -1.2% $2.88 3.2% 17
ENB-T Enbridge Inc. 6.2% $58.93 21.8% $3.66 3.1% 28
ENGH-T Enghouse Systems Limited 3.3% $30.09 -11.4% $1.00 18.3% 17
FNV-N Franco Nevada 1.2% $122.44 11.2% $1.44 5.9% 16
FTS-T Fortis Inc. 3.9% $61.47 12.1% $2.39 4.4% 50
IFC-T Intact Financial 1.8% $266.23 30.9% $4.84 10.0% 19
L-T Loblaw Companies Limited 1.0% $185.51 44.3% $1.92 10.0% 12
MFC-T Manulife Financial 3.6% $44.24 53.2% $1.60 9.6% 10
MGA-N Magna 4.4% $43.40 -21.8% $1.90 3.3% 14
MRU-T Metro Inc. 1.6% $85.74 25.1% $1.34 10.7% 29
RY-T Royal Bank of Canada 3.3% $172.04 29.3% $5.72 7.1% 13
SJ-T Stella-Jones Inc. 1.5% $72.37 -5.5% $1.12 21.7% 19
STN-T Stantec Inc. 0.7% $112.16 7.2% $0.83 7.8% 12
T-T Telus 7.0% $21.81 -8.1% $1.53 7.1% 20
TD-T TD Bank 5.2% $78.91 -6.8% $4.08 6.3% 13
TFII-N TFI International 1.1% $145.55 10.9% $1.60 10.3% 13
TIH-T Toromont Industries 1.6% $118.65 5.2% $1.92 11.6% 34
TRI-N Thomson Reuters 1.3% $168.23 17.4% $2.16 12.5% 30
TRP-T TC Energy Corp. 5.7% $67.82 29.7% $3.84 3.2% 23
WCN-N Waste Connections 0.6% $184.04 24.2% $1.17 11.4% 14
Averages 3.2% 13.0% 9.0% 21

Note: Stocks ending in “-N” declare earnings and dividends in US dollars. To achieve currency consistency between dividends and share price for these stocks, we have shown dividends in US dollars and share price in US dollars (these stocks are listed on a US exchange). The dividends for their Canadian counterparts (-T) would be converted into CDN dollars and would fluctuate with the exchange rate.

For more articles and the full newsletter, check us out on magicpants.substack.com. Don’t miss this opportunity to stay informed and make the most of your investments!

MP Market Review – November 1, 2024

Last updated by BM on November 5, 2024

Summary

 

This is a weekly installment of our MP Market Review series, which provides insights and updates on Canadian dividend growth companies we monitor on ‘The List’. To read all our newsletters and premium content be sure to check us out on magicpants.substack.com.

  • This week, we discuss what to do when a company freezes its dividend.
  • Last week, dividend growth of ‘The List’ stayed the same and has increased by +9.0% YTD (income).
  • Last week, the price of ‘The List’ was down slightly with a return of +12.1% YTD (capital).
  • Last week, there were no dividend announcements from companies on ‘The List’.
  • Last week, there were two earnings reports from companies on ‘The List’.
  • This week, fourteen companies on ‘The List’ are due to report earnings.

DGI Clipboard

 

“The best investment you can make is in a company that doesn’t have to change its dividend policy to stay afloat, but a freeze is sometimes a wise alternative to cuts.”

-Warren Buffett

When A Stock Fails To Raise Its Dividend
Intro

 

I’m reluctant to sell when I am building a position in any of our quality dividend growth stocks. My first objective when buying a stock is to hold it indefinitely and enjoy the steady, growing dividend income it provides. However, sometimes, changes occur that no longer align with the goals of my portfolio before I can fill out my position size. These changes may include a dividend cut or a dividend freeze (when a company fails to raise its dividend at the expected time).

Yesterday, Bell Canada (BCE-T), one of our quality dividend growers, announced a dividend freeze.

To determine if a stock that’s frozen its dividend still belongs in my portfolio, I follow my process:

Does the company’s long-term earnings power appear to have become impaired?

Before deciding to sell, it’s crucial to assess the company’s future prospects:

  • Dividend Potential: Is there a realistic chance the company will still raise its dividend in the current year?
  • Financial Health: Do the company’s future earnings and free cash flow support dividend growth? Or will obligations like debt take priority over returning cash to shareholders?
  • Management’s Commitment: Does the leadership remain committed to dividend growth?
  • Investment Appeal: If you didn’t already own the stock, would you buy it today for its income potential?

If a stock no longer meets my criteria, it becomes a candidate for sale. But before making a final decision, I ask one more question:

Are There More Attractive Ideas?

When a stock becomes a sell candidate, the next step is to explore whether a better alternative exists. Remember that once negative news (like a dividend freeze) is public, it’s often priced into the stock, which may push the yield higher. Yield on cost is irrelevant here; only the current yield matters, as it reflects what you’re giving up and what a replacement investment could provide.

Here’s what to consider when evaluating an alternative:

  • Income Replacement: Will the new stock at least match the lost dividend income?
  • Future Prospects: Does the alternative stock have strong future earnings and cash flow, debt management, and a commitment to dividend growth?
  • Risk Level: Is this new investment more or less risky than the one it’s replacing?

If an alternative stock offers a clear upgrade in income reliability and growth potential, it’s time to sell the dividend-freezing stock and invest in the replacement. This approach keeps the portfolio’s objective—an ever-growing dividend income—on track.

Wrap Up

 

Yesterday was a tough day for Canadian investors, as Bell Canada (BCE-T) is a crucial income source for many. Fortunately, Bell Canada comprises only ~4% of our portfolio, yielding 7% from dividends alone. We’ve been here before—in 2018, our non-public Wealth-Builder Portfolio (USA) faced a similar situation with AT&T. After unloading non-core assets and managing their debt, AT&T has resumed growth, up 28% YTD. While Bell’s long-term earnings are uncertain, few income alternatives look more appealing. We see dividend freezes as opportunities for reassessment rather than immediate alarm.

DGI Scorecard

 
The List (2024)

 

The Magic Pants 2024 list includes 28 Canadian dividend growth stocks. Here are the criteria to be considered a candidate on ‘The List’:

  1. Dividend growth streak: 10 years or more.
  2. Market cap: Minimum one billion dollars.
  3. Diversification: Limit of five companies per sector, preferably two per industry.
  4. Cyclicality: Exclude REITs and pure-play energy companies due to high cyclicality.

Based on these criteria, companies are added or removed from ‘The List’ annually on January 1. Prices and dividends are updated weekly.

‘The List’ is not a portfolio; it is a coaching tool that helps us think about ideas and risk manage our model portfolio. We own some but not all the companies on ‘The List’.

Our newsletter provides readers with a comprehensive insight into the implementation and advantages of our Canadian dividend growth investing strategy. This evidence-based, unbiased approach empowers DIY investors to outperform both actively managed dividend funds and passively managed indexes and dividend ETFs over longer-term horizons.

For those interested in something more, please upgrade to a paid subscriber; you get the enhanced weekly newsletter, access to premium content, full privileges on the new Substack website magicpants.substack.com and DGI alerts whenever we make stock transactions in our model portfolio.

Performance of ‘The List’

 

Last week, dividend growth of ‘The List’ stayed the same and has increased by +9.0% YTD (income). How much did your salary go up this year?

Last week, the average price return of ‘The List’ was down slightly with a return of +12.1% YTD (capital).

Even though prices may fluctuate, the dependable growth in our income does not. Stay the course. You will be happy you did.

Last week’s best performers on ‘The List’ were Dollarama Inc. (DOL-T), up +3.41%; Loblaw Companies Limited (L-T), up +2.55%; and Alimentation Couche-Tard Inc. (ATD-T), up +2.25%.

Brookfield Infrastructure Partners (BIP-N) was the worst performer last week, down -4.45%.

SYMBOL COMPANY YLD PRICE YTD % DIV YTD % STREAK
ATD-T Alimentation Couche-Tard Inc. 1.0% $73.04 -4.8% $0.70 17.4% 14
BCE-T Bell Canada 8.9% $44.81 -17.3% $3.99 3.1% 15
BIP-N Brookfield Infrastructure Partners 4.7% $34.11 11.1% $1.62 5.9% 16
CCL-B-T CCL Industries Inc. 1.4% $81.85 41.5% $1.16 9.4% 22
CNR-T Canadian National Railway 2.2% $150.98 -9.5% $3.38 7.0% 28
CTC-A-T Canadian Tire 4.7% $150.11 8.3% $7.00 1.4% 13
CU-T Canadian Utilities Limited 5.1% $35.38 10.1% $1.81 0.9% 52
DOL-T Dollarama Inc. 0.2% $146.49 54.2% $0.35 29.5% 13
EMA-T Emera 5.6% $50.93 0.3% $2.88 3.2% 17
ENB-T Enbridge Inc. 6.5% $56.42 16.6% $3.66 3.1% 28
ENGH-T Enghouse Systems Limited 3.3% $30.45 -10.4% $1.00 18.3% 17
FNV-N Franco Nevada 1.1% $131.71 19.6% $1.44 5.9% 16
FTS-T Fortis Inc. 4.0% $59.74 8.9% $2.39 4.4% 50
IFC-T Intact Financial 1.8% $269.16 32.4% $4.84 10.0% 19
L-T Loblaw Companies Limited 1.1% $177.41 38.0% $1.92 10.0% 12
MFC-T Manulife Financial 3.9% $41.13 42.4% $1.60 9.6% 10
MGA-N Magna 4.5% $41.97 -24.4% $1.90 3.3% 14
MRU-T Metro Inc. 1.6% $82.91 21.0% $1.34 10.7% 29
RY-T Royal Bank of Canada 3.4% $170.12 27.9% $5.72 7.1% 13
SJ-T Stella-Jones Inc. 1.3% $86.99 13.6% $1.12 21.7% 19
STN-T Stantec Inc. 0.7% $113.77 8.7% $0.83 7.8% 12
T-T Telus 7.0% $21.90 -7.7% $1.53 7.1% 20
TD-T TD Bank 5.3% $76.76 -9.4% $4.08 6.3% 13
TFII-N TFI International 1.2% $132.07 0.7% $1.60 10.3% 13
TIH-T Toromont Industries 1.6% $123.66 9.6% $1.92 11.6% 34
TRI-N Thomson Reuters 1.3% $164.78 15.0% $2.16 12.5% 30
TRP-T TC Energy Corp. 5.9% $64.61 23.5% $3.84 3.2% 23
WCN-N Waste Connections 0.7% $176.96 19.4% $1.17 11.4% 14
Averages 3.2% 12.1% 9.0% 21

Note: Stocks ending in “-N” declare earnings and dividends in US dollars. To achieve currency consistency between dividends and share price for these stocks, we have shown dividends in US dollars and share price in US dollars (these stocks are listed on a US exchange). The dividends for their Canadian counterparts (-T) would be converted into CDN dollars and would fluctuate with the exchange rate.

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