Last updated by BM on December 24, 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 learn the predictive power of our DGI strategy in forecasting long term capital returns.
- 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 +9.8% YTD (capital).
- Last week, there were no dividend announcements from companies on ‘The List’.
- Last week, there were no earnings reports from companies on ‘The List’.
This week, no companies on ‘The List’ are due to report earnings.
DGI Clipboard
“The magnitude of the income, current or prospective, determines the value of the capital which produces it.”
– Arnold Bernhard, Founder of Value Line
Forget the Noise—Focus on Predictable Long-Term Growth
Intro
A couple of weeks ago, we discussed how the short-term predictability of dividend growth serves as the cornerstone of our dividend growth investing strategy. Knowing we can rely on the steady income generated by our investments allows us to sleep well at night, even during periods of market volatility. Moreover, the dependable growth of that income stream helps eliminate concerns or panic about whether it will keep pace with inflation and continue meeting our spending needs when we eventually retire. What may not be immediately obvious is how this same predictability extends to our long-term capital returns.
John Bogle, the founder of Vanguard Group, and Ed Easterling of Crestmont Research both claim they can accurately calculate expected long-term capital returns for dividend growth companies.
They believe stock market returns can be broken down into three key components:
- Dividend Yield – The income generated by dividends relative to the stock price.
- Growth – The increase in earnings and dividends over time.
- P/E Change – The shift in price-to-earnings (P/E) ratios, reflecting changes in market valuation or “expensiveness.”
By focusing on these fundamental drivers, investors can better understand and forecast the long-term performance of dividend growth stocks.
Bogle calls the first two components, Yield + Growth, investment aspects of the investment return and the last component, +/- Change in P/E Ratio, the speculative return – what will people pay for a dollar’s worth of earnings.
The table below presents the ten-year dividend growth and annualized returns for ‘The List’ as of January 1, 2024. The highlighted averages at the bottom assume an equal investment in each company on January 1, 2014, regardless of valuation.
Let’s apply the teachings of Bogle and Easterling from earlier to evaluate the accuracy of the list of stocks we followed in 2024.
Ten years ago, the average dividend yield of ‘The List’ was 2.6% (Actual YLD ’14). Over the following decade, the average annual dividend growth rate was 9.5% (CAGR 10Y DG). Combining these two components gives us an expected investment return of 12.1%.
Over the last decade, the average total return (CAGR 10Y TR) of ‘The List’ was 11.2%. Pretty close to what Bogle and Easterling’s investment return predicted. The -0.9% difference can be attributed to the Change in P/E from the start to the end of the decade (speculative return). This group of stocks, on average, were slightly overvalued (expensive) in 2014 compared to 2024.
Wrap Up
Predictability ultimately depends on three factors: what we know (Yield), what we can reasonably expect (Dividend Growth), and the speculative return (+/—change in P/E). Did we purchase the stock at a sensible price? Mastering these three elements gives you an investment strategy that delivers dependable, growing income and offers predictable future returns.
Become a paid subscriber and start building your portfolio confidently today. 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 +9.8% 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 Toromont Industries (TIH-T), up +2.24%; Canadian Tire (CTC-A-T), up +0.38%; and Enghouse Systems Limited (ENGH-T), up +0.29%.
TFI International (TFII-N) was the worst performer last week, down -9.55%.
| SYMBOL | COMPANY | YLD | PRICE | YTD % | DIV | YTD % | STREAK |
|---|---|---|---|---|---|---|---|
| ATD-T | Alimentation Couche-Tard Inc. | 0.9% | $80.79 | 5.3% | $0.72 | 20.8% | 14 |
| BCE-T | Bell Canada | 12.0% | $33.28 | -38.6% | $3.99 | 3.1% | 15 |
| BIP-N | Brookfield Infrastructure Partners | 5.2% | $31.36 | 2.2% | $1.62 | 5.9% | 16 |
| CCL-B-T | CCL Industries Inc. | 1.6% | $73.56 | 27.2% | $1.16 | 9.4% | 22 |
| CNR-T | Canadian National Railway | 2.3% | $145.34 | -12.9% | $3.38 | 7.0% | 28 |
| CTC-A-T | Canadian Tire | 4.6% | $153.58 | 10.8% | $7.00 | 1.4% | 13 |
| CU-T | Canadian Utilities Limited | 5.3% | $34.47 | 7.3% | $1.81 | 0.9% | 52 |
| DOL-T | Dollarama Inc. | 0.3% | $138.51 | 45.8% | $0.35 | 30.7% | 13 |
| EMA-T | Emera | 5.4% | $53.65 | 5.6% | $2.88 | 3.3% | 17 |
| ENB-T | Enbridge Inc. | 6.2% | $59.43 | 22.8% | $3.66 | 3.1% | 28 |
| ENGH-T | Enghouse Systems Limited | 3.6% | $27.44 | -19.2% | $1.00 | 18.3% | 17 |
| FNV-N | Franco Nevada | 1.2% | $116.21 | 5.5% | $1.44 | 5.9% | 16 |
| FTS-T | Fortis Inc. | 4.0% | $60.01 | 9.4% | $2.39 | 4.4% | 50 |
| IFC-T | Intact Financial | 1.8% | $262.06 | 28.9% | $4.84 | 10.0% | 19 |
| L-T | Loblaw Companies Limited | 1.0% | $190.62 | 48.3% | $1.92 | 10.0% | 12 |
| MFC-T | Manulife Financial | 3.7% | $43.53 | 50.7% | $1.60 | 9.6% | 10 |
| MGA-N | Magna | 4.5% | $42.22 | -23.9% | $1.90 | 3.3% | 14 |
| MRU-T | Metro Inc. | 1.5% | $90.43 | 32.0% | $1.34 | 10.7% | 29 |
| RY-T | Royal Bank of Canada | 3.3% | $173.40 | 30.3% | $5.72 | 7.1% | 13 |
| SJ-T | Stella-Jones Inc. | 1.6% | $70.73 | -7.7% | $1.12 | 21.7% | 19 |
| STN-T | Stantec Inc. | 0.7% | $113.86 | 8.8% | $0.83 | 7.8% | 12 |
| T-T | Telus | 7.7% | $19.92 | -16.0% | $1.53 | 7.1% | 20 |
| TD-T | TD Bank | 5.4% | $75.03 | -11.4% | $4.08 | 6.3% | 13 |
| TFII-N | TFI International | 1.2% | $138.25 | 5.4% | $1.60 | 10.3% | 13 |
| TIH-T | Toromont Industries | 1.7% | $114.06 | 1.1% | $1.92 | 11.6% | 34 |
| TRI-N | Thomson Reuters | 1.3% | $162.20 | 13.2% | $2.16 | 12.5% | 30 |
| TRP-T | TC Energy Corp. | 5.8% | $65.79 | 25.8% | $3.84 | 3.2% | 23 |
| WCN-N | Waste Connections | 0.7% | $174.28 | 17.6% | $1.17 | 11.4% | 14 |
| Averages | 3.4% | 9.8% | 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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