Last updated by BM on December 17, 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 December’s ‘Timely Ten’ most undervalued dividend growth companies.
- Last week, dividend growth of ‘The List’ stayed the same and is up by +9.2% 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 was an off-cycle earnings report from a company on ‘The List’.
- This is the last of the off-cycle reports with the official Q4 earnings season beginning in late January.
DGI Clipboard
“Concentrate on what will produce results rather than on the results, the process rather than the prize.”
— Bill Walsh
Timely Ten: Amidst Tariffs and Turmoil
Intro
Political turmoil in Ottawa and the threat of tariffs on Canadian companies adversely affect Canadian markets. South of the border, healthcare companies are under siege after the United Health shooting. Lots to ponder. This issue should give you lots of ideas to dig a little deeper.
Below are the ten most undervalued dividend growth companies from our Canadian and U.S. watchlists, based on last Friday’s closing prices.
We refresh these lists annually during the first week of January. Be sure to catch the December 31 issue of our newsletter for the highly anticipated release of next year’s updated watchlists!
We own some but not all the companies on these lists. In other words, we might want to buy these companies when valuation looks attractive.
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.
- 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 ‘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 free sample Business Plan.
If you’re a new investor looking to build positions in the ‘Timely Ten,’ now is the perfect time to start your research and take action. For a more guided approach, consider becoming a PAID subscriber to gain access to DGI Alerts. These alerts notify you whenever we make a trade in our model portfolios, allowing you to invest alongside us with confidence. We do the work, and you stay in control!
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’:
- 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.
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 but 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’. In other words, we might want to buy these companies when valuation looks attractive.
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 +9.2% 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 TD Bank (TD-T), up +3.21%; Loblaw Companies Limited (L-T), up +1.18%; and TFI International (TFII-N), up +0.60%.
Enghouse Systems Limited (ENGH-T) was the worst performer last week, down -12.53%.
| SYMBOL | COMPANY | YLD | PRICE | YTD % | DIV | YTD % | STREAK |
|---|---|---|---|---|---|---|---|
| ATD-T | Alimentation Couche-Tard Inc. | 0.9% | $80.90 | 5.4% | $0.72 | 20.8% | 14 |
| BCE-T | Bell Canada | 11.0% | $36.32 | -33.0% | $3.99 | 3.1% | 15 |
| BIP-N | Brookfield Infrastructure Partners | 5.0% | $32.72 | 6.6% | $1.62 | 5.9% | 16 |
| CCL-B-T | CCL Industries Inc. | 1.6% | $74.71 | 29.2% | $1.16 | 9.4% | 22 |
| CNR-T | Canadian National Railway | 2.3% | $147.89 | -11.4% | $3.38 | 7.0% | 28 |
| CTC-A-T | Canadian Tire | 4.6% | $153.00 | 10.4% | $7.00 | 1.4% | 13 |
| CU-T | Canadian Utilities Limited | 5.1% | $35.42 | 10.3% | $1.81 | 0.9% | 52 |
| DOL-T | Dollarama Inc. | 0.2% | $141.84 | 49.3% | $0.35 | 30.7% | 13 |
| EMA-T | Emera | 5.3% | $54.66 | 7.6% | $2.88 | 3.3% | 17 |
| ENB-T | Enbridge Inc. | 6.1% | $59.69 | 23.3% | $3.66 | 3.1% | 28 |
| ENGH-T | Enghouse Systems Limited | 3.7% | $27.36 | -19.5% | $1.00 | 18.3% | 17 |
| FNV-N | Franco Nevada | 1.2% | $119.46 | 8.5% | $1.44 | 5.9% | 16 |
| FTS-T | Fortis Inc. | 4.0% | $60.26 | 9.9% | $2.39 | 4.4% | 50 |
| IFC-T | Intact Financial | 1.8% | $263.30 | 29.5% | $4.84 | 10.0% | 19 |
| L-T | Loblaw Companies Limited | 1.0% | $193.97 | 50.9% | $1.92 | 10.0% | 12 |
| MFC-T | Manulife Financial | 3.6% | $44.07 | 52.6% | $1.60 | 9.6% | 10 |
| MGA-N | Magna | 4.3% | $44.30 | -20.2% | $1.90 | 3.3% | 14 |
| MRU-T | Metro Inc. | 1.4% | $93.06 | 35.8% | $1.34 | 10.7% | 29 |
| RY-T | Royal Bank of Canada | 3.2% | $177.31 | 33.3% | $5.72 | 7.1% | 13 |
| SJ-T | Stella-Jones Inc. | 1.6% | $71.63 | -6.5% | $1.12 | 21.7% | 19 |
| STN-T | Stantec Inc. | 0.7% | $117.60 | 12.4% | $0.83 | 7.8% | 12 |
| T-T | Telus | 7.4% | $20.73 | -12.6% | $1.53 | 7.1% | 20 |
| TD-T | TD Bank | 5.4% | $75.87 | -10.4% | $4.08 | 6.3% | 13 |
| TFII-N | TFI International | 1.0% | $152.85 | 16.5% | $1.60 | 10.3% | 13 |
| TIH-T | Toromont Industries | 1.7% | $111.56 | -1.1% | $1.92 | 11.6% | 34 |
| TRI-N | Thomson Reuters | 1.3% | $168.10 | 17.3% | $2.16 | 12.5% | 30 |
| TRP-T | TC Energy Corp. | 5.8% | $66.11 | 26.4% | $3.84 | 3.2% | 23 |
| WCN-N | Waste Connections | 0.7% | $179.95 | 21.5% | $1.17 | 11.4% | 14 |
| Averages | 3.3% | 12.2% | 9.2% | 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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