Posted by BM on February 21, 2022
“If you have premium high-compound growth non-cyclicals, it is not really necessary to get out if the stock price goes high. If far to high, obviously you can trim a bit and pay some tax, but be sure your gains have been real, not inflation mirages. Personally, I normally just hold and take a few down drafts, counting on the next bull market to take me up again.” Page 104, The Investment Zoo, Stephen Jarislowsky
“Not exactly consoling as we gaze at Wednesday morning’s report from Statistics Canada that inflation jumped to 5.1 per cent in January. That’s a 30-year high, and higher than economists had expected.” Globe & Mail.
I read three articles in the Globe & Mail this week related to rising inflation and what to do about it. They recommend holding dividend growth stocks and gold as a hedge. We aren’t that worried about inflation as our dividend growers are quality companies and our income is growing at a faster rate than inflation. ‘The List’ is already up 7.4% (dividend growth) in 2022 and not all companies have increased their dividends yet.
To sum it all up, we are looking for two things, companies that are effective as an inflation hedge in the presence of inflation, but also their performance as an asset in the absence of it.
Performance of ‘The List’
‘The List’ was down a bit this week with a negative 0.6% YTD price return (capital) and an average of 7.4% in dividend growth (income) added so far for fiscal 2022.
The best performers last week on ‘The List’ were Canadian Tire Corp. (CTC-A-T) up 5.6%; Franco Nevada (FNV-N) up 4.0%; Canadian National Railway (CNR-T) up 2.5%.
Alimentation Couche-Tard Inc. (ATD-T) was the worst performer this week, down -7.4%.
One company on ‘The List’ announced a dividend increase and four companies announced their Q4 and Full Year 2021 earnings reports.
Recent News
Despite this week’s ugly inflation report from Statistics Canada, It’s not all bad news. The earnings reports from companies on ‘The List’ continue to be quite good with most surpassing Analyst expectations. This week, Waste Connections and Canadian Tire beat earnings. Canadian Tire saw the most improvement in 2021 with EPS growth up over 45% and Waste Management gave optimistic double-digit earnings guidance for this year. Emera and TC Energy missed earnings by a penny, with TC Energy raising their dividend to .90 cents per share.
I’ll go over all of our earnings reports in a moment. I’ll also preview four more earnings reports for next week.
Here are a few of the companies on ‘The List’ due to report earnings this week:
Canadian Utilities Limited (CU-T) is scheduled to report earnings after hours Wednesday Feb. 23
Stantec (STN-T) is scheduled to report earnings after hours Wednesday Feb. 23
Loblaws (L-T) is scheduled to report earnings before the market opens Thursday Feb. 24
CCL Industries (CCL-B-T) is scheduled to report earnings after hours Thursday Feb. 24
Dividend Increases
There was one company on ‘The List’ that announced a dividend increase this past week.
TC Energy (IFC-T) on Tuesday said it increased its 2022 quarterly dividend from $0.87 to $.90 per share, payable April 29, 2022 to shareholders of record on Mar. 31, 2022.
This represents a dividend increase of 3.45%, marking the 22nd consecutive year of dividend growth for this ‘utility like’ pipeline company.
Earnings Releases
We had four earnings reports from companies on ‘The List’ this past week. Let’s start with Emera.
Emera (EMA-T)
“We are pleased with the performance of our business in 2021, as we delivered solid financial results and achieved important regulatory outcomes, while continuing to deliver the critical energy needs of our customers during the ongoing COVID-19 pandemic…”
The company published these highlights:
Q4 2021 Financial Results
- Q4 2021 reported net income was $324 million, or $1.24 per common share, compared with net income of $273 million, or $1.09 per common share, in Q4 2020.
- Q4 2021 adjusted net income was $168 million, or $0.64 per common share, compared with $188 million, or $0.75 per common share, in Q4 2020.
Annual 2021 Financial Results
- 2021 reported net income was $510 million or $1.98 per common share, compared with a net income of $938 million or $3.78 per common share in 2020. 2021 reported net income included a $213 million after-tax MTM loss primarily at Emera Energy.
- 2021 adjusted net income was $723 million or $2.81 per common share, compared with $665 million or $2.68 per common share in 2020.
- Growth in annual adjusted net income was driven by higher earnings contribution from EES, PGS and Nova Scotia Power (“NSPI”), lower corporate costs, realized gains on foreign exchange hedges and the 2020 revaluation of deferred taxes due to a reduction in the Nova Scotia corporate income tax rate. The increase was partially offset by the impact of a stronger CAD, the TGH award received in Q4 2020, the 2020 recognition of a corporate income tax recovery at Barbados Light and Power Company (“BLPC”), and lower earnings due to the sale of Emera Maine in Q1 2020.
- Strengthening of the CAD decreased net income by $10 million ($0.04 per share) and decreased adjusted net income1 by $1 million in Q4 2021 compared to Q4 2020. The strengthening of the CAD decreased net income by $17 million ($0.07 per share) and adjusted net income by $28 million ($0.11 per share) for the year ended December 31, 2021, compared to the same period in 2020.
- Decreased quarterly adjusted net income was largely due to the TECO Guatemala Holdings (“TGH”) award received in Q4 2020. Excluding the impact of the award, growth in quarterly net income was driven by higher earnings primarily at Peoples Gas System (“PGS”) lower corporate costs, partially offset by lower contributions from Tampa Electric.
Outlook
Emera’s capital investment plan is $8.4 billion over the 2022-to-2024 period (including a $240 million equity investment in the LIL in 2022), with an additional $1 billion of potential capital investments over the same period. This results in a forecasted rate base growth of approximately 7 per cent to 8 per cent through 2024. The capital investment plan continues to include significant investments across the portfolio in renewable and cleaner generation, reliability and integrity investments, infrastructure modernization and customer-focused technologies.
Emera’s capital investment plan is being funded primarily through internally generated cash flows and debt raised at the operating company level. Equity requirements in support of our capital investment plan are expected to be funded through the dividend reinvestment plan, the issuance of preferred equity and the issuance of common equity through our at-the-market program. Maintaining investment-grade credit ratings is a priority of management.
Emera has provided annual dividend growth guidance of four to five per cent through to 2024.
“We are pleased with the performance of our business in 2021, as we delivered solid financial results and achieved important regulatory outcomes, while continuing to deliver the critical energy needs of our customers during the ongoing COVID-19 pandemic,” said Scott Balfour, President and CEO of Emera Inc. “This progress highlights the strength of our business and strategy that continues to drive value and growth through investments in cleaner energy, infrastructure renewal and service reliability, all at a balanced pace to ensure affordability for our customers.”
With a current yield of 4.55% and dividend growth projected to be in the 4-5% range, EMA-T has generated solid growing income for 15 years now. Purchasing this popular income stock at a sensible price requires patience.
TC Energy (TRP-T) is one of the top performers on ‘The List’ in 2022.
“Our $100 billion diversified portfolio of high-quality, long-life energy infrastructure assets continued to perform extremely well in 2021 as evidenced by our strong financial results…”
The company published these highlights in their Q4 earnings report:
Fourth quarter 2021 financial results
- Net income attributable to common shares of $1.1 billion or $1.14 per common share ◦ Segmented earnings of $1.9 billion
- Net cash provided by operations of $1.8 billion
- Comparable earnings of $1.0 billion or $1.06 per common share
- Comparable EBITDA of $2.4 billion
- Comparable funds generated from operations of $2.1 billion
For the year ended December 31, 2021
- Net income attributable to common shares of $1.8 billion or $1.87 per common share
- Segmented earnings of $4.1 billion
- Net cash provided by operations of $6.9 billion
- Comparable earnings of $4.2 billion or $4.27 per common share
- Comparable EBITDA of $9.4 billion
- Comparable funds generated from operations of $7.4 billion
Corporate
Common share dividend: Our Board of Directors declared a quarterly dividend of $0.90 per common share for the quarter ending March 31, 2022. The quarterly amount is equivalent to $3.60 per common share on an annualized basis, an increase of 3.45 per cent.
Recent management changes: Bevin Wirzba’s role has expanded to Executive Vice-President, Strategy and Corporate Development and Group Executive, Canadian Natural Gas and Liquids Pipelines following the news that Tracy Robinson, former Executive Vice-President and President, Canadian Natural Gas Pipelines and President, Coastal GasLink has decided to pursue a significant leadership role with another organization. Bevin will be supported by Greg Grant, President, Canadian Natural Gas Pipelines and Richard Prior, President, Liquids Pipelines.
RBC Capital Markets thinks that the recent uptick in share price is due to money rotating into TRP-T and out of Utilities due to interest rate fears. TRP-T noted that with 95% of its business being contracted and/or regulated, only about 20% of its operating costs are exposed to near-term inflation. As a result, inflation should not be a material risk to earnings, according to RBC.
We agree, this pipeline company’s fundamentals look more like a company in the utility sector than an energy one. Nice dividend increase announcement as well; Twenty-two years and counting!
Waste Connections (WCN-N)
“… with a step-up in capital expenditures and over $1 billion in acquisition outlays in 2021, positions us for continued double digit growth in 2022, while preserving the balance sheet strength and flexibility to capitalize on another potential above average year of acquisition activity.”
Fourth Quarter Highlights
- Strong price-led organic growth and acquisition activity, along with continuing underlying margin expansion, drives Q4 results above expectations and provides higher entry point into 2022
- Revenue of $1.624 billion, net income(a) of $166.3 million, and adjusted EBITDA(b) of $495.4 million, or 30.5% of revenue
- Net income and adjusted net income(b) of $0.64 and $0.83 per share, respectively
Full Year 2021 Highlights
- Revenue of $6.151 billion, up 13.0%
- Net income of $618.0 million, or $2.36 per share, and adjusted net income(b) of $846.6 million, or $3.23 per share, up 22.3%
- Adjusted EBITDA(b) of $1.919 billion, up 15.5%, and adjusted EBITDA margin of 31.2%, up 70 basis points
- Net cash provided by operating activities of $1.698 billion, up 20.6%
- Adjusted free cash flow(b) of $1.010 billion, up 19.9% on capital expenditures of $744.3 million, up 24.7%
- Completes acquisitions with approximately $400 million of total annualized revenue in 2021
Expectations for 2022
- Strong pricing and acquisition growth to drive double digit percentage increases in revenue and adjusted free cash flow, along with continuing underlying margin expansion
- Revenue of approximately $6.875 billion, up 11.8%, excluding additional acquisitions
- Net income of approximately $846 million and adjusted EBITDA of approximately $2.145 billion, or about 31.2% of revenue
- Net cash provided by operating activities of approximately $2.000 billion
- Adjusted free cash flow of approximately $1.150 billion, up 13.9%, on capital expenditures up 14.2% to approximately $850 million, including $100 million for new landfill gas and resource recovery facilities
- Increasing return of capital to shareholders, including opportunistic share repurchases
“2021’s results are a reflection of how a culture of commitment and accountability to all stakeholders enabled us to excel in a challenging operating environment, overcome inflationary pressures and supply chain issues, execute our growth strategy, expand margins, support employee health and welfare, and position the Company well for 2022 and beyond. The year ended on a high note, as strong solid waste organic growth and acquisition activity, along with continuing underlying margin expansion, drove Q4 financial results once again above expectations. We are also extremely pleased with our results for the full year, as adjusted EBITDA margin expanded 70 basis points. Moreover, we delivered 20% growth in adjusted free cash flow to $1.010 billion, in spite of capital expenditures up 25%, as we continued to reinvest in and grow our business,” said Worthing F. Jackman, President and Chief Executive Officer.
“Acquisition activity accelerated in the fourth quarter, resulting in approximately $400 million in acquired annualized revenues in 2021 and setting up acquisition contribution approaching 6% in 2022, including transactions completed year to date. Along with solid waste pricing growth of about 6.5%, this already positions us for double-digit percentage growth in revenue, adjusted EBITDA(b) and adjusted free cash flow in 2022. Additional acquisitions expected to be completed during the year, improvement in commodity-driven revenues and E&P waste activity, or moderation of inflationary trends would provide incremental benefit.”
Mr. Jackman continued, “The strength and consistency of our results reflect the durability of our market model and the benefits of an intentional culture focused on employees and value creation. Proactive pricing, along with a step-up in capital expenditures and over $1 billion in acquisition outlays in 2021, positions us for continued double digit growth in 2022, while preserving the balance sheet strength and flexibility to capitalize on another potential above average year of acquisition activity, invest in sustainability-focused growth projects and increase return of capital to shareholders.”
WCN-N was one of the top performers on ‘The List’ in 2021 but its stock has come under pressure in 2022 if for no other reason than overvaluation. With an ‘analyst beating’ earnings report and positive management guidance for 2022, there is a lot to like about WCN-N.
A further market downturn could finally present an opportunity to build a position in this quality waste management dividend grower, at a sensible price.
Canadian Tire Corp. (CTC-A-T)
“Our exceptional results in the fourth quarter capped off an outstanding year for CTC-A-T in which we delivered record EPS and remarkable sales growth for the second consecutive year.”
Fourth Quarter Highlights
- Q4 2021 marked the second consecutive year of outstanding comparable sales growth, with consolidated comparable sales, excluding Petroleum, up 11.3%, driven by strong performances across all banners
- Canadian Tire Retail (CTR) comparable sales grew 9.8% vs 2020, with SportChek and Mark’s up 15.9% and 15.0%, respectively
- Consolidated revenue, excluding Petroleum, was up 2.8%, despite strong comparatives and an extra week in the fourth quarter last year
- Owned Brands represented 40% of sales across the banners, with Canvas and Noma leading the impressive growth
- eCommerce sales reached approximately $500 million, with eCommerce penetration rate for retail banners at 9.5%, nearly double pre-pandemic levels
- EPS performance reflected strong retail segment performance
- Diluted EPS of $8.34 was up 4.6% compared to Q4 2020; normalized diluted EPS2 of $8.42 was up slightly on the fourth quarter of 2020
- Retail segment Income before income taxes (IBT) increased $60.2 million, driven by exceptional sales performance and improved gross margins
- A $52.6 million decrease in Financial Services IBT was mainly driven by increased receivables allowance and credit card acquisition costs
- More than 770,000 members joined the Triangle program in the fourth quarter, up 23%
- A more digitally-and mobile-engaged age segment (30-49 years old) represented 41% of new members
- Acquisition of new credit card members was up 36% vs Q4 2020
- Triangle members shopping cross-banner was at 41%, up more than 92bps
Full Year Highlights
2021 marked a second consecutive year of significant growth in sales (including exceptional growth in eCommerce) and revenue, which drove remarkable growth in earnings
- Consolidated comparable sales, excluding Petroleum were up 8.2% over prior year and up 18.3% vs 2019
- eCommerce sales were up 29.9% vs 2020 to more than $2 billion in sales
- Retail sales, excluding Petroleum, were up 6.7% vs 2020 and 18.5% vs 2019
- Retail revenue, excluding Petroleum, was up 8.8% vs 2020 and 17.9% vs 2019
Full-year diluted EPS reached a record level, up 49.3% to $18.38; normalized diluted EPS was $18.91, up 45.5%
- Outstanding returns on invested capital translated into an increase in Retail ROIC, from 10.8% at the end of 2020 to 13.6% at the end of 2021
- Retail segment IBT was up 59.2%, driven by exceptional sales performance and improved gross margins
- Higher gross margin for the year, primarily attributable to lower net impairment losses, was the main driver of a 32.1% increase in Financial Services IBT
The Triangle program attracted 2.4 million new members and ended the year with 11 million Triangle members, including 2.2 million active credit cardholders
“Our exceptional results in the fourth quarter capped off an outstanding year for CTC-A-T in which we delivered record EPS and remarkable sales growth for the second consecutive year. Our fourth quarter comparable sales increase of 11% in 2021 reflects the continued strength and relevance of our unique multi-category assortment and the success of our strengthened omni-channel capabilities. We welcomed 2.4 million new Triangle Rewards members in 2021, many of whom joined through SportChek and Mark’s and subsequently shopped at Canadian Tire for the first time. Our growth in membership, including more than 380,000 new Triangle credit card holders acquired by Canadian Tire Bank, demonstrates the value of our assets and our ability to meet our customers’ needs, however they choose to shop us,” said Greg Hicks, President and CEO, Canadian Tire Corporation.
A good earnings report from CTC-A-T. We like the fact that they found growth in new revenue streams during the pandemic.
“eCommerce sales reached approximately $500 million, with eCommerce penetration rate for retail banners at 9.5%, nearly double pre-pandemic levels.”
Below is a snapshot of ‘The List’ from last Friday’s close. For a sortable version of ‘The List’ please click on The List menu item.
‘The List’ is not meant to be a template for investors to copy exactly. Rather, its purpose is to provide investment ideas and a real-time illustration of dividend growth investing in action. It is not a ‘Buy List’, only a starting point for our analysis and discussion.
The List (2022)
Last updated by BM on February 18, 2022
*Note: The following graph is wide, you can scroll to the right on your device to see more of the data.
| SYMBOL | COMPANY | YLD | PRICE | YTD % | DIV | YTD % | STREAK |
|---|---|---|---|---|---|---|---|
| AQN-N | Algonquin Power & Utilities | 4.9% | $13.92 | -3.0% | $0.68 | 2.3% | 11 |
| ATD-T | Alimentation Couche-Tard Inc. | 0.9% | $49.66 | -4.7% | $0.44 | 18.1% | 12 |
| BCE-T | Bell Canada | 5.5% | $66.72 | 1.2% | $3.68 | 5.1% | 13 |
| BIP-N | Brookfield Infrastructure Partners | 3.6% | $59.76 | -2.2% | $2.16 | 5.9% | 14 |
| CCL-B-T | CCL Industries | 1.3% | $62.89 | -7.2% | $0.84 | 0.0% | 20 |
| CNR-T | Canadian National Railway | 1.8% | $159.13 | 2.7% | $2.93 | 19.1% | 26 |
| CTC-A-T | Canadian Tire | 2.7% | $192.39 | 5.0% | $5.20 | 10.6% | 11 |
| CU-T | Canadian Utilities Limited | 5.0% | $34.98 | -4.5% | $1.76 | 0.0% | 50 |
| DOL-T | Dollarama Inc. | 0.3% | $64.29 | 1.4% | $0.20 | 1.7% | 11 |
| EMA-T | Emera | 4.5% | $58.80 | -6.1% | $2.65 | 2.9% | 15 |
| ENB-T | Enbridge Inc. | 6.5% | $52.55 | 6.1% | $3.44 | 3.0% | 26 |
| ENGH-T | Enghouse Systems Limited | 1.6% | $40.62 | -11.4% | $0.64 | 4.1% | 15 |
| FNV-N | Franco Nevada | 0.9% | $147.77 | 8.6% | $1.28 | 10.3% | 14 |
| FTS-T | Fortis | 3.7% | $57.76 | -4.5% | $2.14 | 4.4% | 48 |
| IFC-T | Intact Financial | 2.2% | $183.61 | 12.1% | $4.00 | 17.6% | 17 |
| L-T | Loblaws | 1.5% | $98.17 | -4.4% | $1.46 | 6.6% | 10 |
| MGA-N | Magna | 2.3% | $77.42 | -5.1% | $1.80 | 4.7% | 12 |
| MRU-T | Metro | 1.6% | $66.93 | -0.2% | $1.10 | 10.0% | 27 |
| RY-T | Royal Bank of Canada | 3.4% | $141.05 | 3.1% | $4.80 | 11.1% | 11 |
| SJ-T | Stella-Jones Inc. | 1.8% | $40.55 | -0.3% | $0.72 | 0.0% | 17 |
| STN-T | Stantec Inc. | 1.0% | $65.55 | -6.6% | $0.66 | 0.0% | 10 |
| TD-T | TD Bank | 3.4% | $106.23 | 6.9% | $3.56 | 12.7% | 11 |
| TFII-T | TFI International | 1.0% | $130.44 | -7.0% | $1.36 | 17.4% | 11 |
| TIH-T | Toromont Industries | 1.4% | $107.93 | -5.1% | $1.52 | 15.2% | 32 |
| TRP-T | TC Energy Corp. | 5.3% | $66.81 | 11.9% | $3.57 | 4.4% | 21 |
| T-T | Telus | 4.1% | $32.13 | 8.0% | $1.31 | 4.4% | 18 |
| WCN-N | Waste Connections | 0.8% | $121.00 | -9.7% | $0.92 | 8.9% | 12 |
| Averages | 2.7% | -0.6% | 7.4% | 18 |
