Last updated by BM on May 16, 2022
“We measure our success by the long-term progress of the companies rather than the month-by-month movements of their stocks”. Warren Buffett
Having a process that pays you to wait is what we like most about our dividend growth investing (DGI) strategy. Participating or even watching what happened in the US stock market last week can conjure up a lot of different emotions. The Nasdaq is now down -30% YTD!
When we were first introduced to DGI, we wondered how the strategy performed in down markets so we did some backtests. Amazingly, the strategy performed much better than the indexes and bounced back faster. One of the reasons we track a list of stocks on the blog is so you can see for yourself all of the benefits of a portfolio of DGI stocks with a record of dividend growth. Less volatility is one of the pluses. While many stocks were heading south last week, YTD price gains on ‘The List’ as a whole, barely moved and two of the stocks on ‘The List’ increased their dividends. Our income is now up over 10% from 2021 with more increases to come.
We wrapped up our Q1 2022 earnings releases last week. Q2 2022, we are thinking, won’t be as rosy as last year’s comparables and will be difficult to beat with the economy slowing.
For subscribers of the blog, we are excited about adding to our model portfolio as pessimism grows. Click on the Subscribe menu item to get started.
Performance of ‘The List’
Last week, ‘The List’ was down slightly with a minus -2.6% YTD price return (capital). Dividend growth of ‘The List’ grew again, now up double digits on the year at 10.1%, demonstrating the rise in our income over the last year.
The best performers last week on ‘The List’ were CCL Industries (CCL-B-T), up 6.8%; Alimentation Couche-Tard Inc. (ATD-T), up 5.5%; and Canadian Tire Corp. (CTC-A-T), up 3.5%.
Franco Nevada (FNV-N) was the worst performer last week, down -11.0%.
Recent News
TD’s high-frequency activity indicators screaming economic ‘slowdown’ across the board
“The pullback in North American equities is essentially driven by a phase of acute P/E compression. We cannot rule out further P/E damage, but we believe the current compression phase is well past its midpoint … We believe that if equities were to suffer another leg down, it will have to come mainly from the earnings side.
We wrote in earlier posts about the ‘excitement factor’ coming into this year. P/E multiples were stretched for many of the stocks on ‘The List’ leaving very few that were in our ‘sensible price’ range. Things have changed a bit now. With Q1 earnings reports behind us, it was good to see many of our fine dividend growers continuing to do well on the earnings side. Dividend increases are paid from growing earnings.
Jack Bogle’s expected return formula:
Future Market Returns = Dividend Yield + Earnings Growth +/- Change in P/E Ratio
Bill Gates cashes out over $645-million from this large-cap dividend stock
Canadian National Railway (CNR-T)
“Between May 2-6, Bill Gates, with an ownership position exceeding 10 per cent, sold a total of 4,235,782 shares for two accounts at an average price per share of approximately $152.40, leaving 12,077,098 shares in one account (Bill & Melinda Gates Foundation Trust) and 63,523,470 shares in different account (Cascade Investment LLC). Proceeds from the sales totaled over $645-million, excluding commission charges.”
We saw CNR’s valuation a bit stretched coming into 2022 so we trimmed our position. With the economy slowing and now a major shareholder trimming as well, we may get an opportunity soon to grow our position size again.
Dividend Increases
There were two companies on ‘The List’ that announced a dividend increase last week.
Canadian Tire (CTC-A-T) on Thursday said it increased its 2022 quarterly dividend from $1.30 to $1.625 per share, payable September 1, 2022, to shareholders of record on July 31, 2022.
This represents a dividend increase of 25%, marking the 12th straight year of dividend growth for this quality retailer.
Algonquin Power & Utilities (AQN-N) on Thursday said it increased its 2022 quarterly dividend from $.1706 to $.1808 per share, payable July 15, 2022, to shareholders of record on June 30, 2022.
This represents a dividend increase of 6%, marking the 12th straight year of dividend growth for this quality utility.
Earnings Releases
Last week was a busy week with seven companies on ‘The List’ reporting their Q1 Fiscal 2022 earnings. Let’s get the ball rolling with Intact Financial.
Intact Financial (IFC-T)
Charles Brindamour, Chief Executive Officer, said:
“We continued to deliver solid results in Q1-2022 and made significant headway in integrating RSA. Our people are collaborating well together, sharing expertise and working to ensure a seamless transition for customers. We have also taken actions to optimize our UK&I footprint and focus our efforts to drive outperformance. Subsequent to quarter end, we announced the sale of RSA’s Middle East business and closed the sale of Codan Denmark. Our robust balance sheet, strong book of business and industry leading talent put us on strong footing to support our customers through this volatile time and capture opportunities as they arise.”
Highlights:
- Net operating income per share increased 13% to $2.70, driven by accretion from RSA and growth in distribution income
- Operating DPW1 grew 86% in the quarter driven by the RSA acquisition and 8% organic growth, led by commercial lines
- Operating combined ratio was a solid 91.7%, but 2.4 points higher than last year due to elevated catastrophe losses
- EPS of $2.53 in the quarter reflected solid operating results but declined from the prior-year period, which included a large investment gain
- OROE of 16.6% and ROE of 14.9%, with BVPS growth of 32% and $2.6 billion total capital margin
- RSA integration progressing well and delivered 12% accretion to NOIPS in the quarter
Outlook:
- Canadian industry profitability was strong in 2021, helped in part by largely hard market conditions and favourable prior year claims development. Over the next twelve months, we expect firm-to-hard insurance market conditions to continue, supported by high prepandemic combined ratios, inflation, climate change and the still relatively low interest rate environment.
- In Canada personal lines, we expect firm market conditions to continue in property and expect auto to return to low-to-mid single-digit growth as driving patterns return to pre-pandemic norms.
- In commercial lines in both US and Canada, hard market conditions are expected to continue.
- In the UK&I, hard market conditions are expected to continue across commercial lines. In personal lines, near term industry growth remains uncertain as companies navigate the recently introduced pricing reforms.
The big news for IFC-T in 2021 was the RSA acquisition. It appears the acquisition was a good one… “RSA contributed approximately 12% to NOIPS for the ten-month period since closing. Given the overall strength of Intact’s results, double-digit accretion is evidence of the quality of the acquired businesses.”
Intact Financial seems to be humming along with two dividend increases to start the year and a positive price return YTD.
Stella Jones (SJ-T)
“With 2022 underway, we are pleased to report first quarter results that delivered on our expectations,” stated Éric Vachon, President and CEO of Stella-Jones.“ Sales increased quarter-over-quarter primarily due to strong organic growth in our infrastructure-related businesses and contributions from the recent Cahaba acquisitions. This growth was largely offset by lower residential lumber sales which, coupled with increasing input costs, pressured our margins. While contractual price adjustments are being implemented to cover escalating costs across the industry supply chain, we anticipate a certain degree of lag until the cost environment stabilizes.”
“In terms of market dynamics, customer demand for utility poles remains robust, based on planned infrastructure investments as well as ongoing replacement programs by utility and telecommunication companies. The trend for railway ties is also positive for 2022, although we are experiencing longer than expected tightness in the market supply for untreated ties. Residential lumber sales in the first quarter were higher than expected, but the peak summer season will be more telling as to the overall performance of this business for the year. In short, we are laying the foundation to achieve our three-year strategic plan and our performance for the first quarter provides a good start,” concluded Mr. Vachon.
Highlights:
- Sales of $651 million, up 4%
- Strong organic sales growth in infrastructure-related businesses
- EBITDA of $88 million, or a margin(1) of 13.5%
- Net income reached $46 million, or $0.73 per share
Outlook:
“Stella-Jones’ sales are primarily to critical infrastructure-related businesses. While all product categories can be impacted by short-term fluctuations, the overall business is mostly based on replacement and maintenance-driven requirements, which are rooted in long-term planning. Corresponding to this longer-term horizon and to better reflect the expected sales run-rate for residential lumber and reduce the impact of commodity price volatility, the Company shifted its guidance to a three-year outlook in early 2022. Below are key highlights of the 2022-2024 outlook with a more comprehensive version, including management assumptions, available in the Company’s MD&A.”
Key Highlights:
- Compound annual sales growth rate in the mid-single digit range from 2019 pre-pandemic levels to 2024;
- EBITDA margin of approximately 15% for the 2022-2024 period;
- Capital investment of $90 to $100 million to support the growing demand of its infrastructure-related customer base, in addition to the $50 to $60 million of annual capital expenditures;
- Residential lumber sales expected to stabilize between 20-25% of total sales while infrastructure-related businesses expected to grow and represent 75-80% of total sales by 2024;
- Anticipated returns to shareholders between $500 and $600 million during three-year outlook period;
- Leverage ratio of 2.0x-2.5x between 2022-2024, but may temporarily exceed range to pursue acquisitions.
We highlighted the lengthened outlook period (3 years) after Q4 2021 earnings were announced as a sign of short term turbulence in SJ-T. Although the valuation is sensible, we would like to see one more quarter of earnings to be sure the estimates are heading in the right direction.
Stantec (STN-T)
“Stantec delivered solid first quarter earnings on the strength of 19.5% net revenue growth, and reaffirms its guidance for the full year. Every regional and business operating unit delivered organic net revenue growth1 and recent acquisitions generated double-digit growth. Backlog continues to grow, rising to a record $5.4 billion, with continued growing momentum in the US.
The organic growth we achieved in Q1 reflects our ability to capitalize on our sector’s strong market fundamentals that continue to be spurred by robust public infrastructure spending and increasing private investment,” said Gord Johnston, President and CEO. “We expect this favorable backdrop to drive accelerating growth as we continue to provide our clients with solutions to the largest and most complex problems of our time. These include the strengthening of local supply chain resilience by re-shoring domestic production, global food security, and climate change, sustainability, and the related energy transition.
I’m particularly pleased that as we continue to execute on our growth strategy, our leadership in sustainability is driving increasing revenues related to the UN Sustainability Development Goals (SDGs). In our recently released Sustainability Report, we disclosed that 53% of our 2021 gross revenues relate to the SDGs, up from 49% in 2020 and 45% in 2019, when we became the first firm in our space to provide this quantification.”
Highlights:
- Net revenue increased 19.5% or $171.4 million compared to Q1 2021, reflecting 6.4% organic and 13.9% acquisition net revenue growth. All of Stantec’s regional and business operating units delivered organic growth, most notably in Global and in Environmental Services where organic growth was in the double-digits.
- Project margin increased $100.7 million or 21.6% to $567.1 million as a result of higher net revenue, solid project execution, and shifts in project mix. As a percentage of net revenue, project margin increased 0.9% to 54.0% from 53.1%.
- Adjusted EBITDA from continuing operations increased $23.1 million or 17.9% to $152.2 million. Adjusted EBITDA margin was 14.5% compared to 14.7% in Q1 2021 due to higher administrative and marketing expenses as a percentage of net revenue, largely related to business development efforts on major programs, increased discretionary spending, and investments in internal resources.
- Net income decreased 12.0%, or $6.1 million, to $44.8 million, and diluted EPS from continuing operations decreased 13.0%, or $0.06, to $0.40, mainly due to higher administrative and marketing expenses, depreciation, amortization, and lower other income. Additions from recent acquisitions contributed to higher depreciation and amortization. These increases in expenses were partly offset by increased project margin and lower income tax expense.
- Adjusted net income grew 21.9%, or $12.3 million, to $68.4 million, representing 6.5% of net revenue, and adjusted diluted EPS increased 22.0% to $0.61 from $0.50 in Q1 2021.
- Contract backlog stands at $5.4 billion at March 31, 2022, a new record that reflects 6.8% organic growth from December 31, 2021. Like net revenues, organic backlog growth was achieved across all of Stantec’s regional and business operating units. US operations led with organic backlog growth of 9.8%. Infrastructure and Energy & Resources achieved double digit organic backlog growth, and Environmental Services’ backlog of $1.1 billion is a high-water mark for this business. Contract backlog represents approximately 14 months of work—an increase of one month from December 31, 2021.
- Operating cash flows amounted to an inflow of $6.0 million compared to $55.7 million in the prior period. First quarter operating activities typically result in cash outflows due to a lower level of activity in the winter season and the timing of payment for Stantec’s short-term incentive program. Positive operating cash flow in Q1 2022 was driven by acquisitions completed in late 2021 and improved market conditions, offset by higher cash paid to employees, reflecting an increased workforce and a higher wage environment relative to Q1 2021.
- Net debt to adjusted EBITDA (on a trailing twelve-month basis) at March 31, 2022 was 1.8x, remaining within Stantec’s internal target range of 1.0x to 2.0x.
- Days sales outstanding was 75 days, consistent with March 31, 2021 and December 31, 2021.
- In Q1 2022, Stantec repurchased 460,657 common shares under its Normal Course Issuer Bid program at a cost of $28.6 million. From April 1 to May 11, 2022, Stantec repurchased a further 386,273 shares for $23.3 million.
- On April 1, 2022, Stantec acquired Barton Willmore, the UK’s leading planning and design consultancy firm. This acquisition added approximately 300 team members across the UK providing services for both public and private clients across all development sectors, which strategically complements Stantec’s existing business in infrastructure.
Outlook:
“We are reaffirming our guidance as provided in the Outlook section of our 2021 Annual Report.
We expect net revenue growth between 18% to 22% and that organic net revenue growth will be in the mid to high single digits, supported by momentum from record-high US backlog and project opportunities arising from the US infrastructure stimulus bill, continued robust activities in Canada, and strong economic growth from continued demand and stimulus in infrastructure sectors in Global. Our ability to meet the growing demand for our services is dependent on our highly skilled workforce. While we are seeing increased competition for staff and a higher wage environment in key geographies, we believe we continue to be well positioned to retain and attract new employees on the strength of our reputation and people-centric corporate culture, and mitigate these effects on project margins. We continue to expect to deliver annual adjusted EBITDA margin in the range of 15.3% to 16.3% and adjusted net income to be at or above 7.5%.
Our Q1 2022 results are slightly below our annual targets but are in line with our expectations. The first quarter of the year typically has lower levels of activity and, this year, we are also impacted by the protracted ramp-up of US activities for projects awarded in the second half of 2021. We expect to be in the higher end of the range in the second half of 2022 as the year progresses and activities increase.”
With a backlog of projects in the billions, STN-N seems poised to grow their earnings in 2022 and beyond. The recent pullback in price could be present a buying opportunity soon.
Canadian Tire (CTC-A-T)
“We delivered a strong first quarter against exceptional results in Q1 last year. Our growth in sales continues to be driven by our highly relevant, unique multi-category assortment across our banners. Comparable store sales were up significantly, with outstanding performances at SportChek, as more families returned to hockey and skiing, and at Mark’s, which achieved growth across all categories in both national and owned brands. Additionally, our Financial Services business saw growth in new accounts and receivables as Canadians spent more on travel and entertainment,” said Greg Hicks, President and CEO, Canadian Tire Corporation.
“As we execute on our Better Connected strategy, we are bolstering our omnichannel capabilities and enhancing the integration of our banners, brands and channels to create a better customer experience, an even stronger competitive position and continued long-term growth,” continued Hicks.
Highlights:
- Q1 2022 marked a strong first quarter against exceptional results in Q1 2021; CTC’s expansive multi-category assortment drove strong topline growth across CTC retail banners
- CTC is executing on its Better Connected strategy unveiled at the March 2022 Investor Day, bolstering omnichannel capabilities and enhancing integration across all banners, brands and channels for a better customer experience
- Diluted EPS was up 23% to $3.03; normalized diluted EPS was $3.06, up 19% compared to the first quarter of 2021
- Quarterly dividend to shareholders to increase 25% to $1.625 per share
Any company that announces a 25% dividend raise immediately catches my attention. We are digging a bit deeper on Canadian Tires fundamentals now.
CCL Industries Inc. (CCL-B-T)
Geoffrey T. Martin, President and Chief Executive Officer, commented, “I am pleased to report solid first quarter results despite rising inflationary cost pressures and many supply chain challenges. All segments posted strong organic sales growth, albeit heavily price driven to offset cost pressures, resulting in 10.8% consolidated organic growth and a 6.3% improvement in adjusted basic earnings to $0.85 per Class B share, excluding the impact of foreign currency translation.”
Highlights:
- Per Class B share: $0.85 adjusted basic earnings up 3.7%; $0.84 basic earnings up 2.4%; currency translation negative $0.02 per share
- Sales increased 12.8% on 10.8% organic growth and 4.5% acquisitions partially offset by 2.5% negative currency translation
- Operating income improved 2.5%, with a 15.0% operating margin down 150 bps on mix and inflation
Coming off overvaluation in 2021 based on historical fundamentals, CCL-B-T is getting closer to our sensible price range now. With a starting yield of 1.6% and a dividend that grew 20% annually over the last ten years, it doesn’t take long for your growth yield to reach our target yield of 7%. Another good dividend grower on our radar.
Algonquin Power & Utilities (AQN-T)
“We are pleased to announce that today our Board of Directors approved a 6% increase in our quarterly common share dividend, supported by solid operating results from the Company’s diversified and resilient business model,” said Arun Banskota, President and Chief Executive Officer of AQN. “We remain committed to delivering on the Company’s $12.4 billion capital plan from 2022 through 2026 to drive growth in earnings and cash flows which we expect will, in turn, support compelling returns for shareholders.”
Highlights:
- Revenue of $735.7 million, an increase of 16% compared to the first quarter of 2021
- Adjusted EBITDA1 of $330.6 million, an increase of 17% compared to the first quarter of 2021;
- Adjusted Net Earnings1 of $141.3 million, an increase of 13% compared to the first quarter of 2021; and
- Adjusted Net Earnings1 per share of $0.21, an increase of 5% compared to the first quarter of 2021.
The highest yielding utility in ‘The List’ at 4.8%, AQN-N is attractive to investors looking for income. Algonquin is the most sensibly priced of all the utilities on ‘The List’ but we find it’s financials difficult to dissect so we are on the sidelines here for now.
Emera (EMA-T)
“Our regulated utilities performed well this quarter, particularly in Florida where robust economic and customer growth continue,” said Scott Balfour, President and CEO of Emera Inc. “We are proud of our track record of delivering growth through the energy transition but we recognize that there is significant work ahead to meet ambitious government climate targets in a way that manages costs for customers and does not sacrifice system reliability. Our proven strategy and progress to date positions us well to address this challenge, and to continue to deliver value and growth to our shareholders.”
Highlights:
- Quarterly adjusted net income of $242 million is consistent with Q1 2021. Quarterly adjusted EPS was $0.92, a decrease of $0.04 from $0.96 in Q1 2021. Contribution from regulated utilities increased adjusted EPS $0.11 year-over-year largely driven by new rates at Tampa Electric and continued growth at People’s Gas (“PGS”). This was offset primarily by lower contributions from Emera Energy due to extreme market conditions in 2021 and by higher share count.
- Quarterly reported net income increased by $89 million to $362 million compared to $273 million in Q1 2021 and quarterly reported EPS increased by $0.30 to $1.38 from $1.08 in Q1 2021 due to mark-to-market (“MTM”) gains.
- On track to deploy close to $3 billion of capital investment in 2022 to advance Emera’s strategy, including our clean energy transition.
All of the utilities on ‘The List’ have performed well in this latest market drawdown. When investors are fearful they do tend to flock to the safety of utility stocks. EMA-T is a little too pricey right now for us to take a serious look.
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’ nor does it reflect the composition or returns of our Magic Pants Wealth-Builder (CDN) Portfolio. It is only a starting point for our analysis and discussion.
The List (2022)
Last updated by BM on May 13, 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 | 5.0% | $14.10 | -1.7% | $0.70 | 5.4% | 11 |
| ATD-T | Alimentation Couche-Tard Inc. | 0.8% | $58.44 | 12.2% | $0.44 | 18.1% | 12 |
| BCE-T | Bell Canada | 5.3% | $68.35 | 3.7% | $3.64 | 4.0% | 13 |
| BIP-N | Brookfield Infrastructure Partners | 3.6% | $59.58 | -2.5% | $2.16 | 5.9% | 14 |
| CCL-B-T | CCL Industries | 1.6% | $59.29 | -12.5% | $0.96 | 14.3% | 20 |
| CNR-T | Canadian National Railway | 2.1% | $142.92 | -7.7% | $2.93 | 19.1% | 26 |
| CTC-A-T | Canadian Tire | 3.3% | $175.64 | -4.1% | $5.85 | 24.5% | 11 |
| CU-T | Canadian Utilities Limited | 4.5% | $39.14 | 6.9% | $1.78 | 1.0% | 50 |
| DOL-T | Dollarama Inc. | 0.3% | $71.44 | 12.7% | $0.22 | 9.2% | 11 |
| EMA-T | Emera | 4.3% | $61.66 | -1.5% | $2.65 | 2.9% | 15 |
| ENB-T | Enbridge Inc. | 6.1% | $56.56 | 14.2% | $3.44 | 3.0% | 26 |
| ENGH-T | Enghouse Systems Limited | 2.2% | $32.58 | -29.0% | $0.72 | 16.3% | 15 |
| FNV-N | Franco Nevada | 0.9% | $135.68 | -0.3% | $1.28 | 10.3% | 14 |
| FTS-T | Fortis | 3.4% | $62.99 | 4.2% | $2.14 | 2.9% | 48 |
| IFC-T | Intact Financial | 2.3% | $176.64 | 7.9% | $4.00 | 17.6% | 17 |
| L-T | Loblaws | 1.3% | $114.29 | 11.3% | $1.54 | 12.4% | 10 |
| MGA-N | Magna | 3.0% | $60.56 | -25.8% | $1.80 | 4.7% | 12 |
| MRU-T | Metro | 1.6% | $69.70 | 4.0% | $1.10 | 12.2% | 27 |
| RY-T | Royal Bank of Canada | 3.8% | $126.62 | -7.5% | $4.80 | 11.1% | 11 |
| SJ-T | Stella-Jones Inc. | 2.3% | $34.87 | -14.3% | $0.80 | 11.1% | 17 |
| STN-T | Stantec Inc. | 1.3% | $54.50 | -22.4% | $0.71 | 6.8% | 10 |
| TD-T | TD Bank | 3.9% | $91.92 | -7.5% | $3.56 | 12.7% | 11 |
| TFII-N | TFI International | 1.3% | $80.83 | -27.0% | $1.08 | 12.5% | 11 |
| TIH-T | Toromont Industries | 1.4% | $111.30 | -2.1% | $1.52 | 15.2% | 32 |
| TRP-T | TC Energy Corp. | 5.0% | $71.55 | 19.8% | $3.57 | 4.4% | 21 |
| T-T | Telus | 4.2% | $31.35 | 5.3% | $1.33 | 6.2% | 18 |
| WCN-N | Waste Connections | 0.7% | $125.93 | -6.1% | $0.92 | 8.9% | 12 |
| Averages | 2.8% | -2.6% | 10.1% | 18 |
