Last updated by BM on September 11, 2023
Summary
- This is a weekly installment of our MP Market Review series, which provides updates on the financial markets and Canadian dividend growth companies we monitor on ‘The List’.
- Last week, ‘The List’ was down with a YTD price return of +1.7% (capital). Dividend growth remained the same and is now at +8.4% YTD, highlighting growth in income over the past year.
- Last week, no dividend increases from companies on ‘The List’.
- Last week, two earnings reports from companies on ‘The List’.
- One company on ‘The List’ is due to report earnings this week.
- If you’re interested in creating your own dividend growth income portfolio, consider subscribing to our premium service, which grants you access to the MP Wealth-Builder Model Portfolio (CDN) and exclusive subscriber-only content. Learn More
Identifying companies whose dividend growth aligns closely with price growth can considerably enhance the predictability of future returns. Dividend growth investors know that the dividend drives the price in a predictable way, not the other way around. Fortis Inc. (FTS-T) is another company on ‘The List’ that aligns very closely with this dividend growth vs price growth pattern we like to see.
Introduction
“You have a pair of pants. In the left pocket, you have $100. You take $1 out of the left pocket and put it in the right pocket. You now have $101. There is no diminution of dollars in your left pocket. That is one magic pair of pants.”
This ‘magic pants’ analogy was from a Seeking Alpha article on dividend investing I read about a decade ago and was one of the catalysts for me to take a closer look at this type of investing and see if it truly was magical.
After conducting additional research, I have shifted towards utilizing a dividend growth investing (DGI) strategy as my primary investment approach. While I maintain portfolios consisting of high-quality dividend growers from both the United States and Canada, I have opted to concentrate on Canadian (CDN) dividend growth companies in this blog. This is due to several reasons, including a smaller pool of DGI companies to track, a lack of coverage for the DGI strategy by the North American investment media, and a tendency for those who do cover DGI to narrowly focus on only a handful of sectors (Energy and Financials).
While ‘The List’ is not a portfolio in itself, it serves as an excellent initial reference for individuals seeking to diversify their investments and attain higher returns in the Canadian stock market. Through our blog, we provide weekly updates on ‘The List’ and offer valuable perspectives and real-life examples of the dividend growth investing strategy in practice. This helps readers gain a deeper understanding of how to implement and benefit from this investment approach.
DGI Thoughts
“A stock is not a purchase until it’s yield reaches the buy range established by the stock’s own unique dividend yield history.”
– Anthony Spare, Relative Dividend Yield
With the recent pullback in price last week, for companies on ‘The List’, we felt it was a good time to look at valuation using dividend yield theory as our metric.
Almost half the companies on ‘The List’ are showing a ‘sensible price’ according to dividend yield theory.
If you have not yet joined as a paid subscriber of the blog to receive DGI Alerts on the activity and content related to our model portfolio, it’s not too late. Click Here.
Recent News
Dividend investing works wonders – and now’s a great time to start with these three stocks (Globe & Mail)
“While the primary objective of investing in these companies is to generate a steady income through dividends, many of the companies that consistently pay dividends in Canada also exhibit solid growth prospects. This dual benefit allows investors to enjoy the best of both worlds – regular income, and the potential for wealth accumulation over time.”
Some great points about the advantages of a dividend growth investing strategy in this article.
Investors should look beyond Enbridge’s enticing dividend yield (Globe & Mail)
“Big dividends are nice – but only when they come with a rising share price.”
The author correctly points out the pitfalls of seeking out high yield dividend stocks. Let’s hope that Enbridge management knows what they are doing with their recent acquisitions.
The List (2023)
Last updated by BM on September 08, 2023
The Magic Pants List contains 27 Canadian dividend growth stocks. ‘The List’ contains Canadian companies that have raised their dividend yearly for at least the last ten years and have a market cap of over a billion dollars. Below is each stock’s symbol, name, current yield, current price, price return year-to-date, current dividend, dividend growth year-to-date and current dividend growth streak. Companies on ‘The List’ are added or subtracted once a year, on January 1. After that, ‘The List’ is set for the next twelve months. Prices and dividends are updated weekly.
| SYMBOL | COMPANY | YLD | PRICE | YTD % | DIV | YTD % | STREAK |
|---|---|---|---|---|---|---|---|
| AQN-N | Algonquin Power & Utilities | 7.1% | $7.11 | 5.6% | $0.51 | -29.0% | 12 |
| ATD-T | Alimentation Couche-Tard Inc. | 0.8% | $71.50 | 18.9% | $0.56 | 19.1% | 13 |
| BCE-T | Bell Canada | 6.9% | $55.28 | -8.2% | $3.82 | 5.0% | 14 |
| BIP-N | Brookfield Infrastructure Partners | 4.4% | $31.56 | 5.2% | $1.44 | 6.3% | 15 |
| CCL-B-T | CCL Industries | 1.8% | $58.68 | 1.1% | $1.06 | 10.4% | 21 |
| CNR-T | Canadian National Railway | 2.1% | $147.15 | -9.7% | $3.16 | 7.8% | 27 |
| CTC-A-T | Canadian Tire | 4.5% | $152.32 | 3.9% | $6.90 | 17.9% | 12 |
| CU-T | Canadian Utilities Limited | 5.7% | $31.61 | -14.4% | $1.79 | 1.0% | 51 |
| DOL-T | Dollarama Inc. | 0.3% | $87.56 | 9.6% | $0.27 | 23.8% | 12 |
| EMA-T | Emera | 5.5% | $50.06 | -4.9% | $2.76 | 3.0% | 16 |
| ENB-T | Enbridge Inc. | 7.8% | $45.77 | -14.2% | $3.55 | 3.2% | 27 |
| ENGH-T | Enghouse Systems Limited | 2.7% | $31.49 | -11.8% | $0.85 | 18.2% | 16 |
| FNV-N | Franco Nevada | 1.0% | $139.20 | 0.8% | $1.36 | 6.3% | 15 |
| FTS-T | Fortis Inc. | 4.2% | $53.37 | -3.6% | $2.26 | 4.1% | 49 |
| IFC-T | Intact Financial | 2.3% | $193.25 | -1.3% | $4.40 | 10.0% | 18 |
| L-T | Loblaws | 1.5% | $118.13 | -1.8% | $1.74 | 10.3% | 11 |
| MGA-N | Magna | 3.2% | $57.33 | -0.3% | $1.84 | 2.2% | 13 |
| MRU-T | Metro | 1.7% | $70.73 | -6.3% | $1.21 | 10.0% | 28 |
| RY-T | Royal Bank of Canada | 4.4% | $120.10 | -6.2% | $5.34 | 7.7% | 12 |
| SJ-T | Stella-Jones Inc. | 1.5% | $62.46 | 26.0% | $0.92 | 15.0% | 18 |
| STN-T | Stantec Inc. | 0.9% | $89.49 | 37.0% | $0.77 | 8.5% | 11 |
| TD-T | TD Bank | 4.8% | $80.63 | -8.0% | $3.84 | 7.9% | 12 |
| TFII-N | TFI International | 1.1% | $131.63 | 31.5% | $1.40 | 29.6% | 12 |
| TIH-T | Toromont Industries | 1.5% | $110.54 | 13.1% | $1.68 | 10.5% | 33 |
| TRP-T | TC Energy Corp. | 7.5% | $49.05 | -8.0% | $3.69 | 3.4% | 22 |
| T-T | Telus Corp. | 6.3% | $22.84 | -13.2% | $1.43 | 7.4% | 19 |
| WCN-N | Waste Connections | 0.7% | $137.84 | 4.7% | $1.02 | 7.4% | 13 |
| Averages | 3.4% | 1.7% | 8.4% | 19 |
Six Canadian stocks on ‘The List’ declare earnings and dividends in US dollars and are inter-listed on a US exchange in US dollars. The simplest way to display dividend and price metrics for these stocks is to show their US exchange symbols along with their US dividends and price. The stocks I am referring to have a -N at the end of their symbols. You can still buy their Canadian counterparts (-T), but your dividends will be converted into CDN dollars and will fluctuate based on the exchange rate.
Note: When the dividend and share price currency match, the calculation is straightforward. But it’s not so simple when the dividend is declared in one currency, and the share price is quoted in another. Dividing the former by the latter would produce a meaningless result because it’s a case of apples and oranges. To calculate the yield properly, you must express the dividend and share price in the same currency.
Performance of ‘The List’
Last week, ‘The List’ was down with a YTD price return of +1.7% (capital). Dividend growth remained the same and is now at +8.4% YTD, highlighting growth in income over the past year.
The best performers last week on ‘The List’ were Enghouse Systems Limited (ENGH-T), up +2.57%; Metro (MRU-T), up +0.33%; and Fortis Inc. (FTS-T), down -0.06%.
Algonquin Power & Utilities (AQN-N) was the worst performer last week, down -6.82%.
Dividend Increases
“The growth of dividend paying ability is of significance in the determination of a stock’s quality, or general safety…”
– Arnold Bernhard (the founder of Value Line)
“As a dividend increase is a positive sign of a company’s financial strength, the safest purchase, after research, is a stock with a recent dividend increase.”
– Tom Connolly (the founder of dividendgrowth.ca)
Last week, no dividend increases from companies on ‘The List’.
Earnings Releases
Benjamin Graham once remarked that earnings are the principal factor driving stock prices.
Each quarter we will provide readers with weekly earnings updates of stocks on ‘The List’ during the calendar earnings season.
The updated earnings calendar can be found here.
Earnings growth and dividend growth tend to go hand in hand, so this information can tell us a lot about the future dividend growth of our quality companies. Monitoring our dividend growers periodically is part of the process, and reading the quarterly earnings releases is a good place to start.
One earnings report from companies on ‘The List’ this week
Dollarama Inc. (ATD-T) will release its second-quarter fiscal 2024 results on Wednesday, September 13, 2023, before markets open.
Last week, two companies on ‘The List’ reported earnings.
Alimentation Couche-Tard Inc. (ATD-T) released its first-quarter fiscal 2024 results on Wednesday, September 6, 2023, after markets closed.
“We are pleased to announce a good first quarter of our new fiscal year, with our Canadian operations leading the way with strong performances in both convenience and fuel. Same store sales continued to grow in all Canadian business units with our packaged beverages category performing exceptionally well. Fuel volumes also grew significantly in this region. Across North America, we are seeing benefit from our promotional initiatives including reoccurring fuel days, which are contributing to volume growth. At the end of August, we had our first ever global Couche-Tard/Circle K Day with limited-time food and fuel discounts across our network from Hong Kong, to Europe, and coast to coast in North America. With inflationary conditions continuing across the globe, our focus has remained on providing value and ease to our customers both inside our stores and on our forecourts.”
– Brian Hannasch, President and CEO
Highlights:
- Net earnings were $834.1 million, or $0.85 per diluted share for the first quarter of fiscal 2024 compared with $872.4 million, or $0.85 per diluted share for the first quarter of fiscal 2023. Adjusted net earnings1 were approximately $838.0 million compared with $875.0 million for the first quarter of fiscal 2023. Adjusted diluted net earnings per share were $0.86, representing an increase of 1.2% from $0.85 for the corresponding quarter of last year.
- Total merchandise and service revenues of $4.3 billion, an increase of 5.0%. Same-store merchandise revenues increased by 2.1% in the United States, by 2.7% in Europe and other regions, and by 6.4% in Canada.
- Merchandise and service gross margin increased by 0.4% in the United States to 34.3%, by 1.0% in Europe and other regions to 39.9%, and by 0.8% in Canada to 33.9%, all impacted favorably by a change in product mix.
- Same-store road transportation fuel volumes increased by 0.7% in the United States, by 7.2% in Canada, and decreased by 1.5% in Europe and other regions.
- Road transportation fuel gross margin of 50.05¢ per gallon in the United States, an increase of 1.05¢ per gallon, and of CA 13.25¢ per liter in Canada, a decrease of CA 0.79¢ per liter. Fuel margins remained healthy throughout the North American network, due to favorable market conditions and the continued work on the optimization of the supply chain. In Europe and other regions, the road transportation fuel margin was US 8.21¢ per liter, a decrease of US 4.05¢ per liter, mostly driven by the volatility of the global fuel market, more impactful to the Corporation’s European gross margin due to a more integrated supply chain model in this region.
- Growth of expenses for the first quarter of fiscal 2024 was 2.9% while normalized growth of expenses was 3.7%, remaining below the average inflation observed throughout the Corporation’s network.
- During the quarter, the Corporation reached an agreement to acquire 2,193 sites from TotalEnergies SE located in Germany, Belgium, Netherlands and Luxembourg.
- During the first quarter of fiscal 2024, the Corporation repurchased 4.7 million shares for an amount of $230.0 million. Subsequent to the end of the first quarter of fiscal 2024 and under the share repurchase program, the Corporation repurchased 10.8 million shares through a private agreement, for an amount of $529.7 million.
Outlook:
At our 2023 Analyst and Investor Conference, we look forward to communicating our new multi-year strategic plan which will include a renewed focus on cost reduction initiatives. Finally, in terms of capital allocation, the recent private buyback transaction, which took place shortly after quarter-end, highlights a great use of our excess cash and will further enhance our key return metrics.
Source: (ATD-T) Q1-2024 Earnings Results
Enghouse Systems Limited (ENGH-T) released its third-quarter fiscal 2023 results on Thursday, September 7, 2023, after markets closed.
“During the third quarter of 2023, we generated an increase in revenue, operating cash flows and operating income. We also continued the integration of the recent acquisitions of Qumu Corporation (“Qumu”) and Mobil All Technologies S.A (“Navita”). Operationally, both businesses were profitable in the third quarter of 2023 with margin improvement. Although these acquisitions were still dilutive to our overall margins this quarter, we are pleased with the integration speed of these recent acquisitions and our achievements of improving Qumu, which had substantial losses over many years prior to Enghouse acquiring it and running it profitably.”
– Stephen J. Sadler, CEO
Highlights:
- Revenue increased 8.7%, notably, while expanding our recurring revenue 13.8% to $72.3 million compared to the same period in the prior year.
- Operating profits improved, with a 30.1% EBITDA margin.
- Operating cash flows increased as a result of improved operating profits and cash collections.
Outlook:
Subsequent to quarter end, on August 1, 2023, Enghouse completed the acquisition of substantially all the assets of Lifesize Inc., a cloud communications company. The acquisition was completed for a purchase price of approximately USD $20.7 million, bringing our total capital deployed on acquisitions in the year to over $56.0 million as of August 1, 2023. The macroeconomic environment of increasing interest rates and a more difficult funding environment for technology companies continues to generate more acquisition opportunities for Enghouse that meet our financial and operational criteria.
Source: (ENGH-T) Q3-2023 Earnings Results
