Month: August 2025

Intro

It is becoming almost routine in today’s volatile markets: each month, one or two companies that appeared in the previous Timely Ten fall off the list. The reason is straightforward: when a stock’s price rises, its dividend yield falls back toward its average, sometimes pushing it out of contention. Seeing this happen in just a few weeks is unusual, but it happens more often than you might expect.

Below are this month’s Canadian and American Timely Ten lists. Two names worth highlighting are goeasy Ltd. (GSY-T) from Canada and Johnson & Johnson (JNJ-N) from the U.S.:

• goeasy Ltd. was trading at $169 with a 3.4% yield when it last appeared on July 11, ranking seventh in our Canadian Timely Ten. By last Friday, the stock had climbed to $209.13, dropping the yield to 2.8%.
• Johnson & Johnson entered the American Timely Ten at ninth place last month with a price of $156.90 and a 3.3% yield. By last Friday, it had risen to $179.29, with the yield now at 2.9%.

For two stocks on the Timely Ten to appreciate this much in just over a month is certainly not the historical norm. Still, it reinforces how effective dividend yield theory can be as a valuation tool for identifying candidates that are undervalued and worth further research.

So how did we miss these? In goeasy Lts.’s case, we already owned shares within our Canadian model portfolio and chose patience over adding more. With Johnson & Johnson, the valuation was attractive, but we were already properly weighted in Healthcare with UnitedHealth and Zoetis, both trading below our cost base. Adding JNJ would have pushed us beyond our sector limits, so we passed.

The takeaway is clear: even when companies look attractively priced, they still need to fit within our broader investment process. A disciplined framework may hold you back at times, but it prevents bigger mistakes in the long run. We are happy to see gains in our existing goeasy Ltd. position and would consider adding more on a pullback. As for Johnson & Johnson, we continue to believe UnitedHealth will deliver better long-term returns, so staying balanced in Healthcare is a trade-off we are comfortable making. 

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 short term. These are our Timely Ten.

Intro

Last week’s article in the MP Market Review (“The All-Canadian DGI Portfolio”) was a good primer for anyone looking to begin their dividend growth investing (DGI) journey with a lump sum investment.

This week, I decided to make my position sizing analysis available in the Free Subscriber section of the newsletter, rather than restricting it to Paid Subscribers. That said, our DGI Candidate List 2025 – Quality/Category/Sizing document remains exclusive to Paid Subscribers in the Premium Content section of our website. This ensures you’ll always have access to an up-to-date version if you are looking for options to put a lump sum to work using our valuation weighted strategy.

In this follow-up article, I’ll focus on how I might invest that lump sum today, with particular attention to current valuations.

Valuation is the second step in our three-step process. Once we’ve separated the “wheat from the chaff” by identifying quality companies, we turn to valuation.

First, we sort The All-Canadian DGI Portfolio by category (Core and Non-Core) and display our minimum and maximum position sizes for each stock, we now have a clear framework to guide allocation decisions.

Intro

One question from subscribers has come up more than almost any others:

“How would you invest right now if you were starting from scratch?”

Our dividend growth investing strategy produces such predictable returns that simply buying the highest-quality companies from The List and holding them long term has historically been a winning formula. I’ve called this the “No-Look DGI Portfolio” in past writings.

In light of today’s macro environment, I’m making a few tweaks. The portfolio will shrink from twenty to thirteen stocks, and instead of equal weighting, each position will follow our recommended size based on current valuation.

All companies in this updated portfolio have at least twenty consecutive years of dividend growth, with a few exceptions worth noting. TD Bank and Royal Bank of Canada were forced to pause dividend increases in 2010 during the financial crisis by the federal government, so we are making the assumption that their long-term dividend growth records would have remained intact. Franco-Nevada is the only stock without a two-decade streak, included here because it’s one of my highest-conviction ideas for today’s market. Finally, a few names have been removed from the original No-Look DGI Portfolio due to weaker growth prospects in the current environment.

Here are the ten-year historical performance metrics for our new All-Canadian DGI Portfolio:

Intro

The first step in managing anything well is setting a clear goal. The second step is tracking your progress toward that goal. Most investors rely on annualized returns and benchmark comparisons to evaluate their performance. But beyond these basics, there is little consistency in how investors measure success.

Dividend growth investors track a different metric: Yield on Cost (YOC). This is calculated by taking the annual dividend income, dividing it by the original purchase price, and multiplying by 100. We refer to this as Growth Yield because it captures the essence of what makes dividend growth investing so powerful: growth over time.

Growth yield measures not just dividend yield but dividend growth as well. It reflects the impact of both the starting yield and the compounding effect of rising dividends. That is why some low-yielding stocks at the time of purchase can end up delivering far more income than higher-yielding alternatives, simply because they grow faster.

If your goal as a dividend growth investor is to build a rising stream of income, growth yield is one of the most effective ways to track your success.

You can see the power of compounding clearly in the example below. Using last Friday’s closing prices, the average starting yield of the companies on The List is 3.2 percent. So far this year, the average dividend growth has been 6.9 percent. If you invested $10,000 across all stocks on the watchlist, here is what the income would look like over time:

• With dividend reinvestment (DRIP), your annual income would grow to $848
• Without DRIP, it would still grow to $583, just from dividends alone

That is before any capital appreciation is included.

Thanks to dividend growth, our initial 3.2 percent yield has risen to 5.8 percent. With reinvested dividends contributing an additional 2.6 percent, the total income yield reaches 8.5 percent. This is the compounding effect in action: steady, powerful, and predictable for those who stay the course.

Intro

An Exchange Traded Fund (ETF) is an investment fund that trades on stock exchanges, similar to individual stocks. It holds a collection of assets such as stocks, bonds, or commodities and is typically designed to track the performance of a specific index, sector, or investment strategy.

A new subscriber recently asked about the advantages of our strategy compared to investing in dividend ETFs. It’s a thoughtful question and one that comes up often. While I’ve addressed it before, it’s worth revisiting the key differences and why we take the approach we do.

Dividend ETFs Often Prioritize Starting Yield Over Growth

Most dividend ETFs are designed to attract income-focused investors. That usually means loading up on high-yield, low-growth stocks. But in our strategy, we seek a balance by focusing on companies that offer both current yield and a track record of dividend growth.

Over time, a growing dividend stream leads to growing capital. That is the true engine of long-term wealth.

Lack of Transparency on Income Growth

ETF websites typically show the fund’s current yield but rarely break down the year-by-year growth of that income. Without visible, consistent income growth, a dividend ETF may be no better than a GIC. Based on our research, most of these funds do not deliver meaningful dividend growth.

A Handful of Great Stocks Beats a Basket of Mediocre Ones

Rather than buying the entire basket, we focus on owning a few high-quality dividend growers. This more selective approach often leads to superior results. Over time, the dividend income and capital returns from a well-chosen group of stocks can surpass the total return of most dividend ETFs.

Sector Concentration Hurts Long-Term Results

Many Canadian dividend ETFs are heavily weighted toward Financials and Energy. This boosts yield, but also increases risk. Energy stocks in particular are cyclical and can drag down returns during downturns. Diversification does not help if you are just spread across two sectors.

ETFs Stay Fully Invested, We Do Not

ETFs are always fully invested. This means when the market corrects, there is no cash on hand to take advantage of better valuations. In our model portfolios, we keep some dry powder ready so we can buy more income at better prices when the opportunity arises.

Short-Term Pressures Hurt Long-Term Results

ETF managers are under constant pressure to deliver short-term performance. This often leads to frequent trading and a tendency to follow the herd. Real wealth is built over time through growing dividends, rising income, and disciplined long-term investing.