Month: February 2026

Intro

One of the most powerful ideas in long-term investing is simple: build your income stream before you need it. Dividend growth investing turns that idea into a disciplined, repeatable strategy. Rather than waiting until retirement to generate cash flow, you steadily accumulate ownership in high-quality businesses that raise their dividends year after year. Over time, that rising income becomes the engine that funds financial freedom.

In our recent Portfolio Letter, the Wealth-Builder Model Portfolio (CDN) demonstrates how this works in practice. Since inception in May 2022, annualized dividend income has increased every year, reaching $4,612 by January 31, 2026. This progress did not come from chasing high yield. It came from consistent investment in companies with durable earnings, strong balance sheets, and proven dividend growth. As dividends increased and new capital was deployed, the portfolio’s income stream compounded.

Intro

Same word. Completely different outcomes.

Investors often use the terms dividend investing and dividend growth investing as if they mean the same thing. They don’t.

Both involve owning companies that pay dividends. But the strategy, the mindset, and most importantly the long-term results are very different.

Understanding this distinction is one of the biggest turning points for new income investors.

Dividend Investing: Income Today

Traditional dividend investing focuses on current yield.

The goal is simple: generate the highest possible income right now.

Investors following this approach typically buy:

• High-yield stocks
• Utilities and telecoms with slow growth
• REITs and income vehicles
• Mature or stagnant businesses

The portfolio often looks attractive at first glance. A 6%–8% yield feels powerful. Cash flow starts immediately.

But there is a trade-off.

High current yield usually means low growth. Sometimes no growth at all.

Over time, inflation erodes purchasing power, dividends stagnate, and share prices often go nowhere. In weaker businesses, both income and capital can eventually decline.

Dividend investing gives you income today.
But it rarely builds wealth tomorrow.

Dividend Growth Investing: Income That Compounds

Dividend growth investing flips the focus from yield to growth of income.

Instead of asking, “What pays the most now?” the question becomes: “Which companies will pay far more in the future?”

Dividend growth investors target:

• Companies with durable competitive advantages
• Consistent earnings growth
• Strong balance sheets
• Long histories of raising dividends

These businesses often start with moderate yields of 1%–3%. That can feel unimpressive to yield-focused investors.

But the power is in the growth.

If a company increases its dividend 7%–10% annually, the income doubles roughly every 7–10 years. Over decades, this creates what we call bondified equities: stocks that eventually yield far more on your original cost than any fixed-income investment ever could.

The Critical Link: Dividend Growth and Price Appreciation

Here is the part many investors miss.

Dividend growth and price appreciation are not separate outcomes.
They are the same economic force expressed in two ways.

Dividends come from earnings.
Rising dividends require rising earnings.
And rising earnings ultimately drive rising share prices.

Over long periods, stock prices follow dividend growth because both reflect the growth of the underlying business.

This is why the best dividend growth companies show a powerful pattern:

Earnings up → Dividend up → Price up

Not every year. Markets fluctuate. Valuations expand and contract.

But over full cycles, dividend growth is one of the most reliable predictors of long-term capital appreciation.

In other words:

Dividend growth investing is not just an income strategy.
It is a total return strategy driven by business growth.

Intro

Our Timely Ten lists remain the fastest way to spot potential value opportunities, which explains why they continue to be the most-read articles every month.

Timely Ten – Canada

Typically, movement up and down the Timely Ten is gradual. Candidates often sit on the list for months before valuation becomes the catalyst and the stock finally moves. Not last month. Two names repriced dramatically in under 30 days.

Magna is the clearest example. It spent nearly two years in the top ten with little movement. Then a strong earnings report hit and the stock surged 27%, falling from #6 last month to #12 today. Moves like this are rare, but they remind us of a core truth: quality companies cannot stay undervalued forever. Magna’s cyclical business adds an element of timing, which is why we built positions in 2023 and again in 2025. When the market finally caught up last week, we were already there collecting a rising dividend. We never know when valuation will normalize, but patience plus dividend growth makes the wait pay.

At the opposite extreme was Thomson Reuters. The business remains strong: recurring revenue, strong free cash flow, and durable dividend growth. What changed was sentiment. The market has pulled software and information services into the AI disruption narrative, and TRI’s valuation compressed faster than expected. The stock’s jump up the Timely Ten from #21 to #9 in one month got our full attention and triggered our second DGI Alert. Unlike Magna’s surge, this was a valuation reset moving in our favor.

Timely Ten – United States

Union Pacific appears to be following Magna’s path. After a long stretch of undervaluation, it has moved out of the Timely Ten and now sits at #12 on our U.S. list. Railroads remain core infrastructure businesses with durable dividend and price growth over full cycles. We have waited patiently for this repricing, and it now looks close.

Automatic Data Processing and Intuit are now firmly embedded in the U.S. Timely Ten after price weakness last month. Intuit’s jump from #20 to #6 mirrors Thomson Reuters in Canada. The market is broadly derating software right now, and high-quality franchises are being marked down with the rest.

One more notable move: Microsoft. The stock climbed from #24 to #17 on the Timely Ten after its recent pullback. It is rare for one of the world’s highest-quality companies to even approach our undervalued range. We used the opportunity to initiate a position in the U.S. model portfolio. When elite businesses briefly go on sale, we act.

As always, the Timely Ten is not a call to action on its own, but a disciplined starting point for deeper research and patient capital deployment.

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

How We Build Portfolios

Dividend growth investing works best when it is treated as a process, not a prediction. Every portfolio we manage is built using the same repeatable framework designed to prioritize quality, discipline, and long-term income growth.

This article outlines exactly how we do it. 

Step 1: Start With a Curated Candidate List

Every holding begins on a carefully curated candidate list. This list is not static. Companies move on and off as fundamentals, valuations, and dividend policies evolve.

Each candidate is evaluated on:

• Business quality and durability
• Financial strength and balance sheet health
• Dividend history, sustainability, and growth potential
• Long-term earnings visibility

Only companies that meet our quality standards are eligible for inclusion. 

Step 2: Assign Quality Ratings and Categories

Once a company qualifies, it is assigned a quality rating and placed into one of two categories: Core or Non-Core. 

Core holdings are essential businesses with durable competitive advantages, consistent cash flow, and shareholder-friendly dividend policies. These companies form the backbone of the portfolio and are expected to deliver reliable income growth across full market cycles. 

Non-Core holdings are typically smaller or faster-growing businesses that enhance overall dividend growth. They offer higher upside potential but tend to carry more variability than Core holdings.

This classification determines how much capital we are willing to allocate. 

Step 3: Define Position Size Before Capital Is Deployed

Position sizing is decided before any trade is made. This removes emotion from the process and enforces discipline.

• Maximum position size
  • Core holdings: up to 8%
  • Non Core holdings: up to 5%

These limits allow us to hold approximately 15 to 20 high-quality companies while maintaining meaningful concentration in our strongest ideas.

The goal is not diversification for its own sake. The goal is owning the best businesses at sensible weights. 

Step 4: Use Minimum Position Sizes to Stay Invested

Minimum position sizes are just as important as maximums.

Our minimum position size, for our Canadian portfolio, ranges from 1% to 4%, depending on category.

This approach serves two purposes:

• It prevents overexposure when valuation or near-term fundamentals are less favorable
• It ensures we maintain exposure to high-quality businesses we want to own long term

Once a company meets our standards, we stay invested and build positions deliberately over time as opportunities improve. 

Step 5: Adjust, Not React

The portfolio is monitored continuously, but changes are made deliberately. Charts, ratings, and categories may be updated throughout the year as new information becomes available.

Nothing here is fixed forever. The framework is consistent, but the inputs evolve.

Always refer to the “Last Updated” date on any portfolio chart or list for the most current view. 

Transparency for Paid Subscribers

Paid subscribers receive DGI Alerts whenever we initiate or add to a position in the model portfolio.

Each alert includes:

• The execution price
• The recommended position size
• The rationale behind the decision

This allows subscribers to follow the process in real time and apply the same discipline to their own portfolios.