Month: February 2025

Intro

An interesting article in the ‘News’ section below highlights the risks of retiring at market highs while following the 4% Rule. This chart sums it up perfectly.

Intro

The Trump tariff policies have brought significant market volatility, with The Wall Street Journal even calling it “the dumbest trade war in history.” As dividend growth investors, we see short-term negativity as an opportunity—market dips allow us to buy more income at better prices. While tariff threats may impact some of our quality dividend growers, both positively and negatively, our focus remains on long-term fundamentals.

Earnings season also adds to the turbulence, with several stocks on our watchlists taking a hit after they reported. Some have now entered our ‘Timely Ten’, while others have climbed higher on the list. We’ll be watching these opportunities most closely in the weeks ahead.

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.

• Dividend growth streak: 10 years or more.
• Market cap: Minimum one billion dollars.
• Diversification: Limit of five companies per sector, preferably two per industry.
• 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

Below is our decade-long CAGR dividend data spreadsheet, with dividends year-by-year from January 1, 2015, to January 1, 2025 and their corresponding returns.

This year brings an added layer of insight with the inclusion of our list of American dividend growth companies, now featured on the blog.

As successful dividend growth investors, we understand that rising dividends lay the foundation for higher share prices. To illustrate this, we highlight in blue the ten-year columns showing the compound annual growth rate (CAGR 10Y) of total return (TR), dividend growth (DG), and price growth (PG) for stocks on our lists. The data speaks for itself—when dividends grow, so does the price.

Intro

Before discovering dividend growth investing (DGI), I constantly worried about outliving my capital in retirement.

What if I lived well into my 90s? How would I cover unpredictable healthcare costs? How can I help my kids buy their first home? What will inflation do to my retirement savings? Questions like these kept me up at night—and they’re the same fears that force many people to work into their 60s and 70s, cutting short the years when they could truly enjoy an active retirement.

Thankfully, everything changed when I found DGI. It gave me the confidence and financial security to retire years earlier than I ever imagined.

Our dividend growth investing strategy is highly adaptable, designed to meet the unique needs of investors regardless of age or starting capital. Whether you’re starting with modest savings or managing a significant portfolio, we can tailor the approach to align with your financial goals.

For example, instead of the $100,000 model portfolio we used for illustrative purposes last week, let’s consider a more ambitious scenario for our older subscribers: a $1,000,000 initial investment with 10+ years until retirement.

Take a look at the last two highlighted columns on the spreadsheet—Annual Dividends Collected and End of Year Portfolio Value—to see how powerful DGI can be in both generating income and growing capital over time.