Month: January 2025

Intro

2024 was undoubtedly a strong year for stocks, driving valuations to near-record highs. However, value can always be found within the market. As one of my mentors, Chuck Carnevale, often says: “It’s a market of stocks, not a stock market.”

Below are the ten most undervalued dividend growth companies from our Canadian and U.S. watchlists, based on last Friday’s closing prices.

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 favourable price correction.

We have pre-screened our candidates using the criteria we initially laid out in building our watchlists. 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 our Canadian and American watchlists based on how far each stock’s price is below its fair value (Low Price), as determined by dividend yield theory. To find fair value, divide the current dividend (Dividend) by the stock’s historical high yield (High Yield).

Since price and yield move in opposite directions, a lower price results in a higher yield, and vice versa. The ten companies above the thick black line have a current price (Price) below fair value (Low Price). Put simply, these stocks have a current dividend yield higher than their historically high yield. According to dividend yield theory, these companies are sensibly priced and have the highest probability of a price increase in the shorter term. These are our ‘Timely Ten.’

Intro

Reflecting on 2024 and Looking Ahead

Another year is in the books, and it’s time to gear up for what lies ahead. Overall, 2024 was a strong year for index investors, with many benchmark indexes reaching new highs. Optimism was fueled by receding inflation, lower interest rates, advances in AI, renewed interest in cryptocurrencies, and shifts in the U.S. political landscape.

However, as seasoned investors know, a single year’s performance doesn’t tell the full story. It’s the consistent, compounding results over 5, 10, or more years that truly matter.

That’s why, as dividend growth investors, we focus on the metric that matters most in the short term: growing cash flow. Reflecting on 2024, there’s really one key question for us: How much did our income grow?

We’re proud to report that every company on ‘The List’—our curated watchlist of high-quality dividend growth companies—increased their dividends in 2024. The average income growth from ‘The List’ was an impressive 9.2%, aligning with historical dividend growth rates of 8.1%, 9.1%, 11.2%, and 9.9% over the past four years.

If you’re following along with our model dividend growth portfolio—or managing a similar DGI portfolio—you’ve likely experienced similar results. While capital appreciation is inevitable as dividends grow, it’s important to stay focused on what we control: the growing income our investments provide.

Never lose sight of our unique approach. As the dividend grows, so does the value of the portfolio. Patience and discipline remain the cornerstones of dividend growth investing.

Here’s to another year of building wealth, one dividend at a time!

Introducing ‘The List-USA’: A Watchlist of Quality American Dividend Growth Companies

In 2025, we are excited to publicly launch ‘The List-USA’, our curated watchlist of high-quality American dividend growth companies, alongside the MP Wealth-Builder Model Portfolio (USA). This initiative builds on the proven methodology we use for Canadian dividend growth companies and applies it to the vast U.S. market.

What is ‘The List-USA’?

It’s important to note that ‘The List-USA’ is not a portfolio but a powerful coaching tool designed to inspire ideas and help us effectively manage risk in building the MP Wealth-Builder Model Portfolio (USA). While we own some of the companies on the list, it primarily serves as a resource for identifying potential opportunities when valuations become attractive.

How We Build ‘The List-USA’

The creation of this watchlist involves a disciplined and rigorous screening process.

Initial Screening Criteria:

• Dividend Growth: Companies must have a minimum of 10 consecutive years of dividend growth.
• Market Capitalization: A market cap of $1 billion or more is required.

This step narrows the field of NYSE and NASDAQ listed companies to approximately 350 candidates.

Refinement Through Final Criteria:

• Diversification: We limit the watchlist to five companies per sector, with no more than two companies from the same industry.
• Cyclicality: To manage risk, we exclude REITs and pure-play energy companies due to their higher cyclicality.

After this extensive filtering and evaluation process, we arrive at the finalized USA Watchlist for 2025.

Why It Matters

This watchlist offers a strategic foundation for dividend growth investors looking to build a high-quality U.S.-focused portfolio. It’s designed to encourage thoughtful decision-making, focusing on both income growth and long-term stability.

It is now time to reveal ‘The List-USA’—your guide to quality dividend growth investing in the United States.