“You have a pair of pants. In the left pocket, you have $100. You take $1 out of the left pocket and put 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.”

Category: MP Market Reviews

MP Market Review – December 13, 2024

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.

  1. Dividend growth streak: 10 years or more.
  2. Market cap: Minimum one billion dollars.
  3. Diversification: Limit of five companies per sector, preferably two per industry.
  4. 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’:

  1. Dividend growth streak: 10 years or more.
  2. Market cap: Minimum one billion dollars.
  3. Diversification: Limit of five companies per sector, preferably two per industry.
  4. 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.

PAID subscribers enjoy full access to our enhanced weekly newsletter, premium content, and easy-to-follow trade alerts so they can build DGI portfolios alongside ours. This service provides the resources to develop your DGI business plan confidently. We do the work; you stay in control!

It truly is the subscription that pays dividends!

The greatest investment you can make is in yourself. Are you ready to take that step? 

For more articles and the full newsletter, check us out on magicpants.substack.com.

MP Market Review – December 6, 2024

Last updated by BM on December 10, 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 look at the predictability of dividend growth for companies on ‘the List’.
  • Last week, dividend growth of ‘The List’ was up and has increased by +9.2% YTD (income).
  • Last week, the price of ‘The List’ was up with a return of +15.0% YTD (capital).
  • Last week, there were two dividend announcements from companies on ‘The List’.
  • Last week, there were three off-cycle earnings reports from companies on ‘The List’.
  • This week, one company on ‘The List’ is due to report earnings.

DGI Clipboard

 

“The beauty of dividends is their predictability, even when the stock market isn’t.”

— Lowell Miller 

Predictable Dividend Growth: The Cornerstone of Wealth Building
Intro

 

Last week, we highlighted the resilience of dividend stocks with long dividend growth streaks. Remarkably, none of the 24 Canadian companies with 10+ years of consecutive dividend growth heading into the Global Financial Crisis of 2008/2009 cut their dividends. This resilience offers peace of mind to income-focused investors, providing a reliable income stream no matter what challenges the future holds.

Another key aspect of quality dividend growth stocks is the dependability of their dividend increases. Once a company enters our universe of quality dividend growers, management typically prioritizes consistent dividend growth. It’s common to find these commitments clearly articulated in their dividend policies and growth strategies, often featured prominently in quarterly earnings reports.

For instance, here are a few examples from Q4 2023 earnings reports (from a year ago) of companies we track on ‘The List’. These examples underscore how management teams take their dividend-growth commitments seriously and make them a core element of their investor value proposition.

“Last year Fortis was proud to celebrate 50 consecutive years of increases in dividends paid to shareholders,” said Mr. Hutchens. “We remain focused on extending this track record as we execute our$25 billion five-year capital plan in support of our annual dividend growth guidance of 4-6% through 2028.“

– Fortis Inc.

“We will continue to develop quality projects within our secured capital program, with approximately $7.0 billion of assets expected to be placed in service in 2024. Our commitment to limiting annual net capital expenditures to $6.0 to $7.0 billion, with a bias to the lower end beyond 2024, will not waver. We believe that adhering to our net capital expenditure limit beyond 2024 will allow TC Energy to continue delivering an attractive and sustainable dividend growth rate of three to five percent.”

-TC Energy

“This quarterly dividend reflects an increase of 7.1 per cent from the $0.3511 per share dividend declared one year earlier and consistent with our multi-year dividend growth program.”

-Telus

Let’s examine how these companies performed in 2024. The table below showcases the five-year dividend growth history for the companies featured on ‘The List,’ highlighting their commitment to rewarding shareholders.

As communicated, Fortis increased its 2024 dividend by 4.4%, Telus by 7.1%, and TC Energy by 3.2%.

Wrap Up

 

Predictable growth is the cornerstone of our strategy, offering peace of mind and long-term financial stability. It eliminates the need to ‘panic sell’ stocks during market turbulence, as our income remains reliable and steadily growing. By consistently outpacing inflation, this income ensures that we not only preserve but enhance our purchasing power over time.

A dependable income stream is fundamental to the success of our dividend growth strategy. As these companies increase payouts, their growing cash flows attract more investor interest, driving price appreciation and compounding our returns.

Become a PAID subscriber and start building your portfolio with confidence 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’:

  1. Dividend growth streak: 10 years or more.
  2. Market cap: Minimum one billion dollars.
  3. Diversification: Limit of five companies per sector, preferably two per industry.
  4. 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 up with a return of +15.0% 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 Enghouse Systems Limited (ENGH-T), up +7.23%; Loblaw Companies Limited (L-T), up +5.51%; and Thomson Reuters (TRI-N), up +4.90%.

TD Bank (TD-T) was the worst performer last week, down -7.22%.

SYMBOL COMPANY YLD PRICE YTD % DIV YTD % STREAK
ATD-T Alimentation Couche-Tard Inc. 0.9% $81.38 6.0% $0.72 20.8% 14
BCE-T Bell Canada 10.5% $37.94 -30.0% $3.99 3.1% 15
BIP-N Brookfield Infrastructure Partners 4.7% $34.41 12.1% $1.62 5.9% 16
CCL-B-T CCL Industries Inc. 1.5% $77.00 33.1% $1.16 9.4% 22
CNR-T Canadian National Railway 2.2% $151.37 -9.3% $3.38 7.0% 28
CTC-A-T Canadian Tire 4.5% $154.07 11.2% $7.00 1.4% 13
CU-T Canadian Utilities Limited 5.0% $36.49 13.6% $1.81 0.9% 52
DOL-T Dollarama Inc. 0.2% $142.04 49.5% $0.35 30.7% 13
EMA-T Emera 5.2% $55.88 10.0% $2.88 3.3% 17
ENB-T Enbridge Inc. 6.0% $61.05 26.1% $3.66 3.1% 28
ENGH-T Enghouse Systems Limited 3.2% $31.28 -7.9% $1.00 18.3% 17
FNV-N Franco Nevada 1.2% $120.65 9.6% $1.44 5.9% 16
FTS-T Fortis Inc. 3.8% $62.98 14.8% $2.39 4.4% 50
IFC-T Intact Financial 1.8% $274.23 34.9% $4.84 10.0% 19
L-T Loblaw Companies Limited 1.0% $191.71 49.1% $1.92 10.0% 12
MFC-T Manulife Financial 3.5% $45.81 58.6% $1.60 9.6% 10
MGA-N Magna 4.2% $45.29 -18.4% $1.90 3.3% 14
MRU-T Metro Inc. 1.4% $93.20 36.0% $1.34 10.7% 29
RY-T Royal Bank of Canada 3.2% $178.27 34.0% $5.72 7.1% 13
SJ-T Stella-Jones Inc. 1.5% $74.45 -2.8% $1.12 21.7% 19
STN-T Stantec Inc. 0.7% $122.44 17.0% $0.83 7.8% 12
T-T Telus 6.9% $22.25 -6.2% $1.53 7.1% 20
TD-T TD Bank 5.6% $73.51 -13.2% $4.08 6.3% 13
TFII-N TFI International 1.1% $151.94 15.8% $1.60 10.3% 13
TIH-T Toromont Industries 1.7% $112.00 -0.7% $1.92 11.6% 34
TRI-N Thomson Reuters 1.3% $170.56 19.0% $2.16 12.5% 30
TRP-T TC Energy Corp. 5.6% $68.29 30.5% $3.84 3.2% 23
WCN-N Waste Connections 0.6% $190.35 28.5% $1.17 11.4% 14
Averages 3.2% 15.0% 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.

PAID subscribers enjoy full access to our enhanced weekly newsletter, premium content, and easy-to-follow trade alerts so they can build DGI portfolios alongside ours. This service provides the resources to develop your DGI business plan confidently. We do the work; you stay in control!

It truly is the subscription that pays dividends!

The greatest investment you can make is in yourself. Are you ready to take that step? 

For more articles and the full newsletter, check us out on magicpants.substack.com.

MP Market Review – November 29, 2024

Last updated by BM on December 3, 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 find out how Canadian dividend growth stocks did in the Global Financial Crisis.
  • Last week, dividend growth of ‘The List’ was up and has increased by +9.2% YTD (income).
  • Last week, the price of ‘The List’ was up with a return of +14.2% YTD (capital).
  • Last week, there was one dividend announcement from a company on ‘The List’.
  • Last week, there was one earnings report from a company on ‘The List’.
  • This week, three companies on ‘The List’ is due to report earnings.

DGI Clipboard

 

“I like to see that the company was capable of increasing its dividends in the good times and the bad so that I’m more comfortable relying on that income in the future.”

– Lowell Miller, The Single Best Investment: Creating Wealth with Dividend Growth

Long Dividend Streaks = High Quality
Intro

 

If you’re new to dividend growth investing, you’re beginning to see that our success isn’t just about total returns—it’s about the steady growth of our dividend income year over year. The ability to rely on this growing income, no matter what the market is doing, provides a sense of stability and peace of mind, especially in retirement.

Looking back at how well Canadian stocks with 10+ years of dividend growth streaks performed during the Global Financial Crisis solidified my confidence in this strategy. Despite one of the most challenging economic periods in recent history, their dividend income held strong. That resilience showed me that dividend growth investing isn’t just a strategy—it’s a reliable foundation for long-term financial security.

To illustrate, let’s look back at the Global Financial Crisis of 2008/2009, a period of extreme financial stress:

At the end of 2007, before the crisis began, there were 24 Canadian stocks with dividend growth streaks of 10+ years.

Of these 24 companies, how many do you think cut their dividends during the crisis?

The answer might surprise you.

The correct answer is none!

It’s worth noting that during this period, 57% of dividend-paying companies worldwide either reduced (43%) or eliminated (14%) their dividends. Following the 2008 global market decline, aggregate dividends dropped by 20%.

This highlights a crucial distinction: dividend-paying stocks are not the same as dividend growth stocks. Dividend growth companies are typically higher-quality names, with stronger fundamentals and a proven commitment to rewarding shareholders over time.

Wrap Up

 

By investing only in companies with a minimum of 10 consecutive years of dividend growth, we ensure our portfolio is built around high-quality businesses. These are the companies that demonstrate resilience, discipline, and the ability to navigate challenging economic times—exactly what you want when markets turn turbulent.

The good news? You don’t have to search far to find these reliable performers. We’ve done the work for you. Check out ‘The List’ right here on our blog, where we highlight companies with proven dividend growth streaks of 10+ years.

Become a PAID subscriber and start building your portfolio with confidence today. We do the work 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’:

  1. Dividend growth streak: 10 years or more.
  2. Market cap: Minimum one billion dollars.
  3. Diversification: Limit of five companies per sector, preferably two per industry.
  4. 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; it is 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’.

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’ was up 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 up with a return of +14.2% 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 Alimentation Couche-Tard Inc. (ATD-T), up +4.22%; Emera (EMA-T), up +2.89%; and Canadian Tire (CTC-A-T), up +2.80%.

TC Energy Corp. (TRP-T) was the worst performer last week, down -2.00%.

SYMBOL COMPANY YLD PRICE YTD % DIV YTD % STREAK
ATD-T Alimentation Couche-Tard Inc. 0.9% $81.91 6.7% $0.72 20.8% 14
BCE-T Bell Canada 10.5% $37.90 -30.0% $3.99 3.1% 15
BIP-N Brookfield Infrastructure Partners 4.6% $34.97 13.9% $1.62 5.9% 16
CCL-B-T CCL Industries Inc. 1.5% $77.61 34.2% $1.16 9.4% 22
CNR-T Canadian National Railway 2.2% $156.34 -6.3% $3.38 7.0% 28
CTC-A-T Canadian Tire 4.5% $154.37 11.4% $7.00 1.4% 13
CU-T Canadian Utilities Limited 5.0% $35.94 11.9% $1.81 0.9% 52
DOL-T Dollarama Inc. 0.2% $145.84 53.5% $0.35 30.7% 13
EMA-T Emera 5.4% $53.42 5.2% $2.88 3.3% 17
ENB-T Enbridge Inc. 6.0% $60.57 25.1% $3.66 3.1% 28
ENGH-T Enghouse Systems Limited 3.4% $29.17 -14.1% $1.00 18.3% 17
FNV-N Franco Nevada 1.2% $122.62 11.3% $1.44 5.9% 16
FTS-T Fortis Inc. 3.8% $62.59 14.1% $2.39 4.4% 50
IFC-T Intact Financial 1.8% $266.67 31.2% $4.84 10.0% 19
L-T Loblaw Companies Limited 1.1% $181.70 41.3% $1.92 10.0% 12
MFC-T Manulife Financial 3.6% $45.07 56.1% $1.60 9.6% 10
MGA-N Magna 4.2% $45.14 -18.7% $1.90 3.3% 14
MRU-T Metro Inc. 1.5% $91.23 33.2% $1.34 10.7% 29
RY-T Royal Bank of Canada 3.2% $176.16 32.4% $5.72 7.1% 13
SJ-T Stella-Jones Inc. 1.6% $71.54 -6.6% $1.12 21.7% 19
STN-T Stantec Inc. 0.7% $121.27 15.9% $0.83 7.8% 12
T-T Telus 7.0% $21.80 -8.1% $1.53 7.1% 20
TD-T TD Bank 5.1% $79.23 -6.4% $4.08 6.3% 13
TFII-N TFI International 1.1% $151.68 15.6% $1.60 10.3% 13
TIH-T Toromont Industries 1.7% $115.00 1.9% $1.92 11.6% 34
TRI-N Thomson Reuters 1.3% $162.59 13.4% $2.16 12.5% 30
TRP-T TC Energy Corp. 5.6% $68.26 30.5% $3.84 3.2% 23
WCN-N Waste Connections 0.6% $192.47 29.9% $1.17 11.4% 14
Averages 3.2% 14.2% 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.

PAID subscribers enjoy full access to our enhanced weekly newsletter, premium content, and easy-to-follow trade alerts so they can build DGI portfolios alongside ours. This service provides the resources to develop your DGI business plan confidently. We do the work; you stay in control!

It truly is the subscription that pays dividends!

The greatest investment you can make is in yourself. Are you ready to take that step? 

For more articles and the full newsletter, check us out on magicpants.substack.com.

MP Market Review – November 22, 2024

Last updated by BM on November 26, 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 ask: Should retirees choose dividend stocks over bonds?
  • Last week, dividend growth of ‘The List’ stayed the course and has increased by +9.1% YTD (income).
  • Last week, the price of ‘The List’ was up with a return of +13.6% YTD (capital).
  • Last week, there were no dividend announcements from companies on ‘The List’.
  • Last week, there was an earnings report from a company on ‘The List’.
  • This week, one company on ‘The List’ is due to report earnings.

DGI Clipboard

 

“Cash is not a safe investment, is not a safe place because it will be taxed by inflation.”

– Ray Dalio

The Question Isn’t When You Retire But How!
Intro

 

A couple of months ago, in the ‘DGI Clipboard’ section of our weekly newsletter, I wrote about How to Own Inflation: Why Dividend Growth is the True Hedge. In that article, I demonstrated how inflation erodes purchasing power and explained why owning a portfolio of dividend growth stocks is one of the best ways to combat this challenge. Unlike bonds and T-bills, which don’t grow their income over time, a dividend growth portfolio not only increases its income but appreciates in value—this was the key point we emphasized.

This week, The Globe and Mail published a column exploring a similar theme. It compared the performance of dividend growth stocks to bonds and T-bills over the past 25 years, posing the question: Should retirees buy dividend stocks instead of bonds?

First a little column background:

To answer the question with historical data, the author picked the year 1999 as a starting point and created both a bond portfolio and a stock portfolio. This year was particularly favorable for government bonds, as yields were high and on a downward trajectory, benefiting bond prices. However, it was a challenging starting point for stocks due to the significant market disruptions that followed: the dot-com bubble burst in 2001-2002, the Great Recession of 2008-2009, and the sharp but short-lived market downturn during the early months of the COVID-19 pandemic.

The $50,000 stock portfolio was allocated across three companies: BCE-T (a telecom), TD-T (a Big Five bank), and ENB-T (a pipeline in the energy sector). While not necessarily the top performers in their sectors, these companies were chosen for their reputation as reliable dividend payers and provided some diversification.

The bond portfolio also consisted of $50,000, invested in long-term Canadian government bonds purchased in 1999. At the time, these bonds offered a yield of over 6%, which was locked in for the full 25-year term.

As a third option, the author also included 91-day Treasury bills (T-bills).

The author brilliantly proves his point with just two charts, leaving you to question the appeal of fixed income for long-term retirement investing.

Stocks (dividend growth stocks) are the clear winner in both income and capital growth. We already know it’s the growing income/yield that drives total return. Soon many others will do what we do.

By year 25, your initial $50K investment yields $16K annually in dividends—a 32% return on the original amount in this year alone—and it’s still growing!

Wrap Up

 

The charts in this article can be replicated for any period over the last twenty years using other quality dividend growth stocks from ‘The List.’ While we don’t recommend holding just three stocks, a diversified portfolio of 15-20 quality dividend growers would yield similar results. There is no need for an ETF, a wealth manager or an adviser.

Investing in the stock market doesn’t have to be a high-risk endeavor. Our growing yield strategy is ‘how’ to play the long-term horizon of retirement investing. Purchasing individual, quality dividend growth stocks at sensible valuations and holding them for their steadily growing income remains one of the most effective strategies to preserve purchasing power and achieve above-average total returns.

The complete Globe and Mail article referenced above is available for Globe subscribers in the ‘DGI News’ section later in this newsletter.

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’:

  1. Dividend growth streak: 10 years or more.
  2. Market cap: Minimum one billion dollars.
  3. Diversification: Limit of five companies per sector, preferably two per industry.
  4. 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; it is 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’.

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 course and has increased by +9.1% YTD (income). How much did your salary go up this year?

Last week, the average price return of ‘The List’ was up with a return of +13.6% 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 Franco Nevada (FNV-N), up +8.55%; Metro Inc. (MRU-T), up +3.76%; and Stella-Jones Inc. (SJ-T), up +3.71%.

Canadian Tire (CTC-A-T) was the worst performer last week, down -1.82%.

SYMBOL COMPANY YLD PRICE YTD % DIV YTD % STREAK
ATD-T Alimentation Couche-Tard Inc. 0.9% $78.59 2.4% $0.70 17.4% 14
BCE-T Bell Canada 10.7% $37.42 -30.9% $3.99 3.1% 15
BIP-N Brookfield Infrastructure Partners 4.7% $34.74 13.2% $1.62 5.9% 16
CCL-B-T CCL Industries Inc. 1.5% $77.68 34.3% $1.16 9.4% 22
CNR-T Canadian National Railway 2.2% $155.44 -6.8% $3.38 7.0% 28
CTC-A-T Canadian Tire 4.7% $150.16 8.3% $7.00 1.4% 13
CU-T Canadian Utilities Limited 5.0% $36.10 12.4% $1.81 0.9% 52
DOL-T Dollarama Inc. 0.2% $145.51 53.1% $0.35 30.7% 13
EMA-T Emera 5.5% $51.92 2.2% $2.88 3.3% 17
ENB-T Enbridge Inc. 6.1% $60.47 24.9% $3.66 3.1% 28
ENGH-T Enghouse Systems Limited 3.4% $29.27 -13.8% $1.00 18.3% 17
FNV-N Franco Nevada 1.2% $123.69 12.3% $1.44 5.9% 16
FTS-T Fortis Inc. 3.8% $63.13 15.1% $2.39 4.4% 50
IFC-T Intact Financial 1.8% $271.68 33.6% $4.84 10.0% 19
L-T Loblaw Companies Limited 1.1% $178.29 38.7% $1.92 10.0% 12
MFC-T Manulife Financial 3.5% $45.37 57.1% $1.60 9.6% 10
MGA-N Magna 4.2% $45.08 -18.8% $1.90 3.3% 14
MRU-T Metro Inc. 1.5% $89.73 31.0% $1.34 10.7% 29
RY-T Royal Bank of Canada 3.3% $174.71 31.3% $5.72 7.1% 13
SJ-T Stella-Jones Inc. 1.6% $70.69 -7.7% $1.12 21.7% 19
STN-T Stantec Inc. 0.7% $120.06 14.7% $0.83 7.8% 12
T-T Telus 7.2% $21.26 -10.4% $1.53 7.1% 20
TD-T TD Bank 5.2% $78.51 -7.3% $4.08 6.3% 13
TFII-N TFI International 1.1% $148.73 13.4% $1.60 10.3% 13
TIH-T Toromont Industries 1.6% $116.74 3.5% $1.92 11.6% 34
TRI-N Thomson Reuters 1.3% $161.20 12.5% $2.16 12.5% 30
TRP-T TC Energy Corp. 5.5% $69.65 33.1% $3.84 3.2% 23
WCN-N Waste Connections 0.6% $189.87 28.2% $1.17 11.4% 14
Averages 3.2% 13.6% 9.1% 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.

PAID subscribers enjoy full access to our enhanced weekly newsletter, premium content, and easy-to-follow trade alerts so they can build DGI portfolios alongside ours. This service provides the resources to develop your DGI business plan confidently. We do the work; you stay in control!

It truly is the subscription that pays dividends!

The greatest investment you can make is in yourself. Are you ready to take that step? 

For more articles and the full newsletter, check us out on magicpants.substack.com.

MP Market Review – November 15, 2024

Last updated by BM on November 19, 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 our ‘Timely Ten’ most undervalued dividend growth companies.
  • Last week, dividend growth of ‘The List’ was up and has increased by +9.1% 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 were three earnings reports from companies on ‘The List’.
  • This week, one company on ‘The List’ is due to report earnings.

DGI Clipboard

 

“Some of the most undervalued assets on Wall Street are history books.”

-Morgan Housel, author of The Psychology of Money

Timely Ten: Expanding Our Investable Universe
Intro

 

This month, we’ve expanded our ‘Timely Ten’ to include a selection of U.S. companies we actively monitor. While we track far more than the 30 U.S. companies featured on this list, we’ve streamlined it for consistency with our Canadian counterpart. Broadening your investable universe offers no shortage of compelling opportunities to consider.

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.

  1. Dividend growth streak: 10 years or more.
  2. Market cap: Minimum one billion dollars.
  3. Diversification: Limit of five companies per sector, preferably two per industry.
  4. 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 sample Business Plan.

If you’re a new investor looking to build positions in the ‘Timely Ten,’ now is the perfect opportunity to start your research and take action. For a more guided approach, consider becoming a PAID subscriber to gain access to DGI Alerts, which notify you whenever we make a trade in our model portfolios, allowing you to invest alongside us with confidence.

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’:

  1. Dividend growth streak: 10 years or more.
  2. Market cap: Minimum one billion dollars.
  3. Diversification: Limit of five companies per sector, preferably two per industry.
  4. 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; it is 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’.

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’ was up slightly and has increased by +9.1% 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 Manulife Financial (MFC-T), up +4.09%; Stantec Inc. (STN-T), up +3.42%; and Alimentation Couche-Tard Inc. (ATD-T), up +3.04%.

Franco Nevada (FNV-N) was the worst performer last week, down -6.93%.

SYMBOL COMPANY YLD PRICE YTD % DIV YTD % STREAK
ATD-T Alimentation Couche-Tard Inc. 0.9% $79.37 3.4% $0.70 17.4% 14
BCE-T Bell Canada 10.6% $37.81 -30.2% $3.99 3.1% 15
BIP-N Brookfield Infrastructure Partners 4.7% $34.20 11.4% $1.62 5.9% 16
CCL-B-T CCL Industries Inc. 1.5% $77.12 33.3% $1.16 9.4% 22
CNR-T Canadian National Railway 2.2% $153.35 -8.1% $3.38 7.0% 28
CTC-A-T Canadian Tire 4.6% $152.95 10.4% $7.00 1.4% 13
CU-T Canadian Utilities Limited 5.2% $34.98 8.9% $1.81 0.9% 52
DOL-T Dollarama Inc. 0.2% $148.07 55.8% $0.35 30.7% 13
EMA-T Emera 5.7% $50.76 -0.1% $2.88 3.3% 17
ENB-T Enbridge Inc. 6.2% $59.40 22.7% $3.66 3.1% 28
ENGH-T Enghouse Systems Limited 3.4% $29.60 -12.9% $1.00 18.3% 17
FNV-N Franco Nevada 1.3% $113.95 3.5% $1.44 5.9% 16
FTS-T Fortis Inc. 3.8% $62.21 13.4% $2.39 4.4% 50
IFC-T Intact Financial 1.8% $266.26 31.0% $4.84 10.0% 19
L-T Loblaw Companies Limited 1.1% $181.49 41.2% $1.92 10.0% 12
MFC-T Manulife Financial 3.5% $46.05 59.5% $1.60 9.6% 10
MGA-N Magna 4.3% $43.90 -20.9% $1.90 3.3% 14
MRU-T Metro Inc. 1.5% $86.48 26.2% $1.34 10.7% 29
RY-T Royal Bank of Canada 3.3% $171.13 28.6% $5.72 7.1% 13
SJ-T Stella-Jones Inc. 1.6% $68.16 -11.0% $1.12 21.7% 19
STN-T Stantec Inc. 0.7% $116.00 10.8% $0.83 7.8% 12
T-T Telus 7.2% $21.39 -9.8% $1.53 7.1% 20
TD-T TD Bank 5.2% $78.80 -7.0% $4.08 6.3% 13
TFII-N TFI International 1.1% $143.66 9.5% $1.60 10.3% 13
TIH-T Toromont Industries 1.6% $117.34 4.0% $1.92 11.6% 34
TRI-N Thomson Reuters 1.3% $161.71 12.8% $2.16 12.5% 30
TRP-T TC Energy Corp. 5.6% $69.05 32.0% $3.84 3.2% 23
WCN-N Waste Connections 0.6% $183.50 23.9% $1.17 11.4% 14
Averages 3.2% 12.2% 9.1% 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.

For more articles and the full newsletter, check us out on magicpants.substack.com. Don’t miss this opportunity to stay informed and make the most of your investments!

MP Market Review – November 8, 2024

Last updated by BM on November 12, 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 the performance of our MP Wealth Builder Model Portfolio (USA).
  • Last week, dividend growth of ‘The List’ stayed the same and has increased by +9.0% YTD (income).
  • Last week, the price of ‘The List’ was up with a return of +13.0% YTD (capital).
  • Last week, there were two dividend announcements from companies on ‘The List’.
  • Last week, there were fourteen earnings reports from companies on ‘The List’.
  • This week, three companies on ‘The List’ are due to report earnings.

DGI Clipboard

 

”Missing the train” vs. ”losing your money”. There are a lot of trains, but if your money is gone, it’s over.

– Paul Tudor Jones

Growing Dividends, Growing Wealth: The Strong Returns of Our U.S. Portfolio
Intro

 

Major indices, including the S&P 500 and Dow Jones, have surged to new highs, reflecting investor optimism around the incoming Trump administration’s economic policies. Here in Canada, our markets experienced a similar boost following Donald Trump’s election victory, but our markets never seem to quite keep up.

This week, I’m excited to welcome our new subscribers from south of the border! Our reach is growing, and while much of our analysis focuses on Canadian dividend growth companies, the principles of dividend growth investing are just as relevant in the U.S. as they are in Canada. The key difference? The U.S. market offers roughly ten times the number of quality dividend growth companies to invest in.

In this edition of the MP Market Review, readers will get a sneak peek at our soon-to-be-public MP Wealth-Builder Model Portfolio (USA). I launched this portfolio for family and friends in May 2023, following a business plan similar to the one in our ‘Premium Content’ section. The main difference lies in the position sizing strategy. When I post the portfolio performance to the blog, I will include the U.S. business plan as well.

To provide accountability, transparency, and trust in our process, we ‘timestamp’ all our trades. Each quarter, we show each purchase transaction to date to see how we are doing and the effects a growing dividend has on price. We don’t hide our history. When we’re wrong, it’s right there for all to see – every win, loss, and tie.

Portfolio To Date (USA)

To date, we’ve invested in thirteen high-quality dividend growth companies spanning seven U.S. sectors. Our strategy prioritizes top-tier companies within each sector, ensuring focused yet ample diversification.

Wrap Up

 

Since inception, our USA portfolio has achieved an impressive 25% annualized return (including dividends) without the volatility of FANG or AI stocks. This highlights the strength of our strategy to grow income and capital steadily while delivering above-average total returns.

For American investors, our approach mirrors the favourable tax treatment of eligible Canadian dividends that Canadians enjoy, making it an attractive option to explore. While I’ll begin posting performance updates for the USA portfolio on the blog, I won’t have time to write detailed articles about every trade. However, I’m happy to send timely trade alerts to those interested. Let me know in the comments section if this is something of interest to you.

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’:

  1. Dividend growth streak: 10 years or more.
  2. Market cap: Minimum one billion dollars.
  3. Diversification: Limit of five companies per sector, preferably two per industry.
  4. 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; it is 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’.

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 +9.0% YTD (income). How much did your salary go up this year?

Last week, the average price return of ‘The List’ was up with a return of +13.0% 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 TFI International (TFII-N), up +10.21%; Manulife Financial (MFC-T), up +7.56%; and Alimentation Couche-Tard Inc. (ATD-T), up +5.46%.

Stella-Jones Inc. (SJ-T) was the worst performer last week, down -16.81%.

SYMBOL COMPANY YLD PRICE YTD % DIV YTD % STREAK
ATD-T Alimentation Couche-Tard Inc. 0.9% $77.03 0.4% $0.70 17.4% 14
BCE-T Bell Canada 10.1% $39.49 -27.1% $3.99 3.1% 15
BIP-N Brookfield Infrastructure Partners 4.7% $34.29 11.7% $1.62 5.9% 16
CCL-B-T CCL Industries Inc. 1.4% $81.19 40.4% $1.16 9.4% 22
CNR-T Canadian National Railway 2.2% $154.15 -7.6% $3.38 7.0% 28
CTC-A-T Canadian Tire 4.5% $154.00 11.1% $7.00 1.4% 13
CU-T Canadian Utilities Limited 5.2% $34.64 7.8% $1.81 0.9% 52
DOL-T Dollarama Inc. 0.2% $151.00 58.9% $0.35 29.5% 13
EMA-T Emera 5.7% $50.19 -1.2% $2.88 3.2% 17
ENB-T Enbridge Inc. 6.2% $58.93 21.8% $3.66 3.1% 28
ENGH-T Enghouse Systems Limited 3.3% $30.09 -11.4% $1.00 18.3% 17
FNV-N Franco Nevada 1.2% $122.44 11.2% $1.44 5.9% 16
FTS-T Fortis Inc. 3.9% $61.47 12.1% $2.39 4.4% 50
IFC-T Intact Financial 1.8% $266.23 30.9% $4.84 10.0% 19
L-T Loblaw Companies Limited 1.0% $185.51 44.3% $1.92 10.0% 12
MFC-T Manulife Financial 3.6% $44.24 53.2% $1.60 9.6% 10
MGA-N Magna 4.4% $43.40 -21.8% $1.90 3.3% 14
MRU-T Metro Inc. 1.6% $85.74 25.1% $1.34 10.7% 29
RY-T Royal Bank of Canada 3.3% $172.04 29.3% $5.72 7.1% 13
SJ-T Stella-Jones Inc. 1.5% $72.37 -5.5% $1.12 21.7% 19
STN-T Stantec Inc. 0.7% $112.16 7.2% $0.83 7.8% 12
T-T Telus 7.0% $21.81 -8.1% $1.53 7.1% 20
TD-T TD Bank 5.2% $78.91 -6.8% $4.08 6.3% 13
TFII-N TFI International 1.1% $145.55 10.9% $1.60 10.3% 13
TIH-T Toromont Industries 1.6% $118.65 5.2% $1.92 11.6% 34
TRI-N Thomson Reuters 1.3% $168.23 17.4% $2.16 12.5% 30
TRP-T TC Energy Corp. 5.7% $67.82 29.7% $3.84 3.2% 23
WCN-N Waste Connections 0.6% $184.04 24.2% $1.17 11.4% 14
Averages 3.2% 13.0% 9.0% 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.

For more articles and the full newsletter, check us out on magicpants.substack.com. Don’t miss this opportunity to stay informed and make the most of your investments!

MP Market Review – November 1, 2024

Last updated by BM on November 5, 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 discuss what to do when a company freezes its dividend.
  • Last week, dividend growth of ‘The List’ stayed the same and has increased by +9.0% YTD (income).
  • Last week, the price of ‘The List’ was down slightly with a return of +12.1% YTD (capital).
  • Last week, there were no dividend announcements from companies on ‘The List’.
  • Last week, there were two earnings reports from companies on ‘The List’.
  • This week, fourteen companies on ‘The List’ are due to report earnings.

DGI Clipboard

 

“The best investment you can make is in a company that doesn’t have to change its dividend policy to stay afloat, but a freeze is sometimes a wise alternative to cuts.”

-Warren Buffett

When A Stock Fails To Raise Its Dividend
Intro

 

I’m reluctant to sell when I am building a position in any of our quality dividend growth stocks. My first objective when buying a stock is to hold it indefinitely and enjoy the steady, growing dividend income it provides. However, sometimes, changes occur that no longer align with the goals of my portfolio before I can fill out my position size. These changes may include a dividend cut or a dividend freeze (when a company fails to raise its dividend at the expected time).

Yesterday, Bell Canada (BCE-T), one of our quality dividend growers, announced a dividend freeze.

To determine if a stock that’s frozen its dividend still belongs in my portfolio, I follow my process:

Does the company’s long-term earnings power appear to have become impaired?

Before deciding to sell, it’s crucial to assess the company’s future prospects:

  • Dividend Potential: Is there a realistic chance the company will still raise its dividend in the current year?
  • Financial Health: Do the company’s future earnings and free cash flow support dividend growth? Or will obligations like debt take priority over returning cash to shareholders?
  • Management’s Commitment: Does the leadership remain committed to dividend growth?
  • Investment Appeal: If you didn’t already own the stock, would you buy it today for its income potential?

If a stock no longer meets my criteria, it becomes a candidate for sale. But before making a final decision, I ask one more question:

Are There More Attractive Ideas?

When a stock becomes a sell candidate, the next step is to explore whether a better alternative exists. Remember that once negative news (like a dividend freeze) is public, it’s often priced into the stock, which may push the yield higher. Yield on cost is irrelevant here; only the current yield matters, as it reflects what you’re giving up and what a replacement investment could provide.

Here’s what to consider when evaluating an alternative:

  • Income Replacement: Will the new stock at least match the lost dividend income?
  • Future Prospects: Does the alternative stock have strong future earnings and cash flow, debt management, and a commitment to dividend growth?
  • Risk Level: Is this new investment more or less risky than the one it’s replacing?

If an alternative stock offers a clear upgrade in income reliability and growth potential, it’s time to sell the dividend-freezing stock and invest in the replacement. This approach keeps the portfolio’s objective—an ever-growing dividend income—on track.

Wrap Up

 

Yesterday was a tough day for Canadian investors, as Bell Canada (BCE-T) is a crucial income source for many. Fortunately, Bell Canada comprises only ~4% of our portfolio, yielding 7% from dividends alone. We’ve been here before—in 2018, our non-public Wealth-Builder Portfolio (USA) faced a similar situation with AT&T. After unloading non-core assets and managing their debt, AT&T has resumed growth, up 28% YTD. While Bell’s long-term earnings are uncertain, few income alternatives look more appealing. We see dividend freezes as opportunities for reassessment rather than immediate alarm.

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’:

  1. Dividend growth streak: 10 years or more.
  2. Market cap: Minimum one billion dollars.
  3. Diversification: Limit of five companies per sector, preferably two per industry.
  4. 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; it is 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’.

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 +9.0% YTD (income). How much did your salary go up this year?

Last week, the average price return of ‘The List’ was down slightly with a return of +12.1% 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 Dollarama Inc. (DOL-T), up +3.41%; Loblaw Companies Limited (L-T), up +2.55%; and Alimentation Couche-Tard Inc. (ATD-T), up +2.25%.

Brookfield Infrastructure Partners (BIP-N) was the worst performer last week, down -4.45%.

SYMBOL COMPANY YLD PRICE YTD % DIV YTD % STREAK
ATD-T Alimentation Couche-Tard Inc. 1.0% $73.04 -4.8% $0.70 17.4% 14
BCE-T Bell Canada 8.9% $44.81 -17.3% $3.99 3.1% 15
BIP-N Brookfield Infrastructure Partners 4.7% $34.11 11.1% $1.62 5.9% 16
CCL-B-T CCL Industries Inc. 1.4% $81.85 41.5% $1.16 9.4% 22
CNR-T Canadian National Railway 2.2% $150.98 -9.5% $3.38 7.0% 28
CTC-A-T Canadian Tire 4.7% $150.11 8.3% $7.00 1.4% 13
CU-T Canadian Utilities Limited 5.1% $35.38 10.1% $1.81 0.9% 52
DOL-T Dollarama Inc. 0.2% $146.49 54.2% $0.35 29.5% 13
EMA-T Emera 5.6% $50.93 0.3% $2.88 3.2% 17
ENB-T Enbridge Inc. 6.5% $56.42 16.6% $3.66 3.1% 28
ENGH-T Enghouse Systems Limited 3.3% $30.45 -10.4% $1.00 18.3% 17
FNV-N Franco Nevada 1.1% $131.71 19.6% $1.44 5.9% 16
FTS-T Fortis Inc. 4.0% $59.74 8.9% $2.39 4.4% 50
IFC-T Intact Financial 1.8% $269.16 32.4% $4.84 10.0% 19
L-T Loblaw Companies Limited 1.1% $177.41 38.0% $1.92 10.0% 12
MFC-T Manulife Financial 3.9% $41.13 42.4% $1.60 9.6% 10
MGA-N Magna 4.5% $41.97 -24.4% $1.90 3.3% 14
MRU-T Metro Inc. 1.6% $82.91 21.0% $1.34 10.7% 29
RY-T Royal Bank of Canada 3.4% $170.12 27.9% $5.72 7.1% 13
SJ-T Stella-Jones Inc. 1.3% $86.99 13.6% $1.12 21.7% 19
STN-T Stantec Inc. 0.7% $113.77 8.7% $0.83 7.8% 12
T-T Telus 7.0% $21.90 -7.7% $1.53 7.1% 20
TD-T TD Bank 5.3% $76.76 -9.4% $4.08 6.3% 13
TFII-N TFI International 1.2% $132.07 0.7% $1.60 10.3% 13
TIH-T Toromont Industries 1.6% $123.66 9.6% $1.92 11.6% 34
TRI-N Thomson Reuters 1.3% $164.78 15.0% $2.16 12.5% 30
TRP-T TC Energy Corp. 5.9% $64.61 23.5% $3.84 3.2% 23
WCN-N Waste Connections 0.7% $176.96 19.4% $1.17 11.4% 14
Averages 3.2% 12.1% 9.0% 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.

For more articles and the full newsletter, check us out on magicpants.substack.com. Don’t miss this opportunity to stay informed and make the most of your investments!

MP Market Review – October 25, 2024

Last updated by BM on October 29, 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, Warren Buffett reminds us to always wait for the right pitch.
  • Last week, dividend growth of ‘The List’ was up and has increased by +9.0% YTD (income).
  • Last week, the price of ‘The List’ was down with a return of +12.9% YTD (capital).
  • Last week, there were two dividend announcements from companies on ‘The List’.
  • Last week, there were three earnings reports from companies on ‘The List’.
  • This week, two companies on ‘The List’ are due to report earnings.

DGI Clipboard

 

“The stock market is a no-called-strike game. You don’t have to swing at everything—you can wait for your pitch.”

-Warren Buffett

Only Swing at the Right Opportunities!
Intro

 

Unfortunately, the Blue Jays didn’t make it to the World Series this year, but I thought a timely baseball anecdote in this week’s DGI Clipboard might help ease the sting.

Baseball and Investing

Warren Buffett often references Ted Williams, the legendary baseball player, to explain his philosophy on disciplined investing. In his 2005 Berkshire Hathaway shareholder letter, Buffett described how Williams approached hitting by dividing the strike zone into 77 squares, each about the size of a baseball. Williams knew his batting average would be much higher if he only swung at pitches in his “sweet spot,” or areas where he could hit well.

Buffett compares this selective approach to investing, noting that investors don’t have to swing at every “pitch” (investment opportunity) that comes their way. Instead, they should patiently wait for the right opportunities—those in their “sweet spot” of understanding and valuation. By only investing in situations they feel confident in, they can improve their “batting average,” or success rate, just as Williams did with his strategic approach at the plate. This analogy has been a cornerstone of Buffett’s approach to value investing: patience, discipline, and understanding the pitches (investments) that best suit one’s skills and knowledge.

On average, we take just 15 to 20 “swings” each year, carefully choosing investments that land in our ‘sweet spot.’ This disciplined approach has served us well: in 2024, we’ve taken just seven swings, yet these have yielded an impressive average YTD capital gain of 19%.

Our “batting average” improves further by holding these investments for the long term. That’s where the power of dividend growth investing (DGI) comes into play. For patient investors, DGI allows us to watch our investment thesis unfold over years, not just quarters. With DGI, there’s no rush to sell to see a return; we’re rewarded with consistent and growing dividends simply by holding. History has shown that longer holding periods improve the probability of a positive outcome.

Wrap Up

 

The longer we hold, the higher our dividend yield on cost (return from dividends alone) and the greater the likelihood of capital growth. Just as Ted Williams’ legendary .344 batting average is among the highest in baseball history, DGI investors can achieve a “batting average” over .800 (80%) by consistently buying high-quality dividend growers when they’re sensibly priced and holding. By holding these stocks for the long term (> five years), we let the compounding effect of dividends drive our returns—often leading to a price significantly higher than our original investment.

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’:

  1. Dividend growth streak: 10 years or more.
  2. Market cap: Minimum one billion dollars.
  3. Diversification: Limit of five companies per sector, preferably two per industry.
  4. 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; it is 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’.

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’ was up and has now increased by +9.0% 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 +12.9% 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 Franco Nevada (FNV-N), up +2.64%; TD Bank (TD-T), up +0.59%; and CCL Industries Inc. (CCL-B-T), up -0.68%.

Toromont Industries (TIH-T) was the worst performer last week, down -5.64%.

SYMBOL COMPANY YLD PRICE YTD % DIV YTD % STREAK
ATD-T Alimentation Couche-Tard Inc. 1.0% $71.43 -6.9% $0.70 17.4% 14
BCE-T Bell Canada 8.8% $45.57 -15.9% $3.99 3.1% 15
BIP-N Brookfield Infrastructure Partners 4.5% $35.70 16.3% $1.62 5.9% 16
CCL-B-T CCL Industries Inc. 1.4% $82.73 43.0% $1.16 9.4% 22
CNR-T Canadian National Railway 2.2% $154.25 -7.6% $3.38 7.0% 28
CTC-A-T Canadian Tire 4.5% $156.92 13.2% $7.00 1.4% 13
CU-T Canadian Utilities Limited 5.0% $35.96 12.0% $1.81 0.9% 52
DOL-T Dollarama Inc. 0.2% $141.66 49.1% $0.35 29.5% 13
EMA-T Emera 5.4% $53.13 4.6% $2.88 3.2% 17
ENB-T Enbridge Inc. 6.4% $56.93 17.6% $3.66 3.1% 28
ENGH-T Enghouse Systems Limited 3.2% $30.93 -8.9% $1.00 18.3% 17
FNV-N Franco Nevada 1.1% $135.62 23.1% $1.44 5.9% 16
FTS-T Fortis Inc. 3.9% $60.89 11.0% $2.39 4.4% 50
IFC-T Intact Financial 1.8% $267.38 31.5% $4.84 10.0% 19
L-T Loblaw Companies Limited 1.1% $173.00 34.6% $1.92 10.0% 12
MFC-T Manulife Financial 3.9% $41.41 43.4% $1.60 9.6% 10
MGA-N Magna 4.5% $41.98 -24.4% $1.90 3.3% 14
MRU-T Metro Inc. 1.6% $81.71 19.3% $1.34 10.7% 29
RY-T Royal Bank of Canada 3.4% $170.22 27.9% $5.72 7.1% 13
SJ-T Stella-Jones Inc. 1.3% $86.21 12.5% $1.12 21.7% 19
STN-T Stantec Inc. 0.7% $113.64 8.6% $0.83 7.8% 12
T-T Telus 7.0% $22.00 -7.3% $1.53 7.1% 20
TD-T TD Bank 5.2% $78.30 -7.5% $4.08 6.3% 13
TFII-N TFI International 1.2% $133.82 2.0% $1.60 10.3% 13
TIH-T Toromont Industries 1.5% $126.09 11.8% $1.92 11.6% 34
TRI-N Thomson Reuters 1.3% $164.78 15.0% $2.16 12.5% 30
TRP-T TC Energy Corp. 5.8% $65.68 25.6% $3.84 3.2% 23
WCN-N Waste Connections 0.7% $175.80 18.7% $1.17 11.4% 14
Averages 3.2% 12.9% 9.0% 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.

For more articles and the full newsletter, check us out on magicpants.substack.com. Don’t miss this opportunity to stay informed and make the most of your investments!

MP Market Review – October 18, 2024

Last updated by BM on October 22, 2024

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’.

  • This week, we discuss the ‘Timely Ten’ and the subtle moves up and down the list.
  • Last week, dividend growth of ‘The List’ stayed the course and has increased by +8.9% YTD (income).
  • Last week, the price of ‘The List’ was up with a return of +15.2% 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, three companies on ‘The List’ are due to report earnings.

DGI Clipboard

 

“Current yield, using its own historic yield as a guide, is, in my view, a fine valuation measure.”

– Tom Connolly

Timely Ten: Pressure Mounts on Two High-Quality Companies
Intro

 

Our ‘Timely Ten’ of the most undervalued stocks on ‘The List’ remains consistent with last month’s candidates, but there has been a notable shift in their rankings. TD Bank and Alimentation Couche-Tard Inc. have climbed significantly, now standing out as some of the most undervalued, according to our dividend yield theory metric. Both stocks show double-digit levels of undervaluation.

This development isn’t entirely unexpected, as both companies have recently faced notable challenges impacting their stock prices—details on this can be found in the news section of our newsletter.

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.

  1. Dividend growth streak: 10 years or more.
  2. Market cap: Minimum one billion dollars.
  3. Diversification: Limit of five companies per sector, preferably two per industry.
  4. 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 without any positions in the ‘Timely Ten’, now is the time to start your research and get to work.

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’:

  1. Dividend growth streak: 10 years or more.
  2. Market cap: Minimum one billion dollars.
  3. Diversification: Limit of five companies per sector, preferably two per industry.
  4. 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; it is 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’.

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 course and has now increased by +8.9% YTD (income). How much did your salary go up this year?

Last week, the average price return of ‘The List’ was up with a return of +15.2% 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 Franco Nevada (FNV-N), up +6.93%; Brookfield Infrastructure Partners (BIP-N), up +6.58%; and Emera (EMA-T), up +5.87%.

Stella-Jones Inc. (SJ-T) was the worst performer last week, down -4.35%.

SYMBOL COMPANY YLD PRICE YTD % DIV YTD % STREAK
ATD-T Alimentation Couche-Tard Inc. 0.9% $73.73 -3.9% $0.70 17.4% 14
BCE-T Bell Canada 8.6% $46.31 -14.5% $3.99 3.1% 15
BIP-N Brookfield Infrastructure Partners 4.5% $36.28 18.2% $1.62 5.9% 16
CCL-B-T CCL Industries Inc. 1.4% $83.30 44.0% $1.16 9.4% 22
CNR-T Canadian National Railway 2.2% $156.84 -6.0% $3.38 7.0% 28
CTC-A-T Canadian Tire 4.4% $159.72 15.2% $7.00 1.4% 13
CU-T Canadian Utilities Limited 4.9% $36.94 15.0% $1.81 0.9% 52
DOL-T Dollarama Inc. 0.2% $144.74 52.3% $0.35 29.5% 13
EMA-T Emera 5.4% $53.60 5.5% $2.88 3.2% 17
ENB-T Enbridge Inc. 6.3% $57.97 19.8% $3.66 3.1% 28
ENGH-T Enghouse Systems Limited 3.2% $31.43 -7.5% $1.00 18.3% 17
FNV-N Franco Nevada 1.1% $132.13 20.0% $1.44 5.9% 16
FTS-T Fortis Inc. 3.8% $62.09 13.2% $2.39 4.4% 50
IFC-T Intact Financial 1.8% $270.87 33.2% $4.84 10.0% 19
L-T Loblaw Companies Limited 1.1% $177.23 37.9% $1.92 10.0% 12
MFC-T Manulife Financial 3.8% $42.10 45.8% $1.60 9.6% 10
MGA-N Magna 4.4% $43.49 -21.6% $1.90 3.3% 14
MRU-T Metro Inc. 1.6% $84.76 23.7% $1.34 10.7% 29
RY-T Royal Bank of Canada 3.3% $174.08 30.8% $5.72 7.1% 13
SJ-T Stella-Jones Inc. 1.3% $88.63 15.7% $1.12 21.7% 19
STN-T Stantec Inc. 0.7% $115.65 10.5% $0.83 7.8% 12
T-T Telus 6.8% $22.57 -4.8% $1.53 7.1% 20
TD-T TD Bank 5.2% $77.84 -8.1% $4.08 6.3% 13
TFII-N TFI International 1.2% $137.71 5.0% $1.60 10.3% 13
TIH-T Toromont Industries 1.4% $133.62 18.5% $1.92 11.6% 34
TRI-N Thomson Reuters 1.3% $168.60 17.6% $2.16 12.5% 30
TRP-T TC Energy Corp. 5.8% $66.42 27.0% $3.84 3.2% 23
WCN-N Waste Connections 0.6% $182.60 23.2% $1.14 8.6% 14
Averages 3.1% 15.2% 8.9% 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.

For more info and the full newsletter, check us out on magicpants.substack.com. Don’t miss this opportunity to stay informed and make the most of your investments!

MP Market Review – October 11, 2024

Last updated by BM on October 16, 2024

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’.

  • This week, we discuss The Art of Pruning: Letting Winners Run While Trimming Excess Growth.
  • Last week, dividend growth of ‘The List’ ticked upwards and has increased by +8.9% YTD (income).
  • Last week, the price of ‘The List’ was also up with a return of +13.3% 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

 

“Selling your winners and holding your losers is like cutting the flowers and watering the weeds.” 

– Peter Lynch

The Art of Pruning: Letting Winners Run While Trimming Excess Growth
Intro

 

Now that we’re halfway through our initial capital deployment in our business plan, we will soon see some of our stocks approach and surpass our maximum position size thresholds. One of our quality dividend growers has grown by over 40% since our purchases in late 2022 and 2023. As Mr. Lynch correctly points out, we don’t like to cut our flowers too early, but history has shown us that ‘pruning’ works just fine.

Selling Guidelines

We take a patient, long-term investment horizon when we invest and expect to hold the stock for decades, keeping portfolio turnover low. Portfolio turnover will be minimal, so selling will be rare. We will only sell a company under the following conditions:

  1. if the safety of the dividend payment has come into question
  2. the company’s long-term earnings power appears to have become impaired
  3. the stock’s valuation reaches seemingly excessive levels, or we find a more attractive idea

Based on the first two conditions, we won’t be selling any of the companies in our model portfolio. However, we will consider ‘pruning’ positions if valuations become excessively high.

Let’s take a closer look at one of the top performers in our portfolio—Royal Bank (RY-T)—to evaluate whether its recent success has pushed it into overvalued territory. To make this assessment, we rely on two valuation metrics: historical fundamentals and dividend yield theory. These tools help us gauge whether the stock’s current price has outpaced its intrinsic value or drifted too far from long-term averages.

Historical Fundamentals

The company’s operating results will determine a stock’s price in the long run.

Analyzing a company’s historical fundamentals tells you much about how the business has been valued over a longer time frame. Many of the stocks we invest in have a ‘narrow valuation corridor,’ which means the stock price follows a path that rarely deviates from its historical trading range. A company’s P/E (Price to Adjusted Operating Earnings), OCF (Price to Operating Cash Flow), EBITDA (Price to Earnings Before Interest Taxes and Amortization), and Sales (Price to Sales) ranges tell us a lot about how a company has been traditionally valued.

Purchasing at the bottom of these ranges or selling at the top has helped us manage our entry and exit points to enhance returns.

We use the Fundamental Analyzer Software Tool (FASTgraphs) to visualize how a company has been historically valued. We like to see it trading within its typical ‘valuation corridor’ based on a ten-to-twelve-year timeline. This gives us a clearer picture of how the stock is traded in different economic cycles.

Adjusted Operating Earnings 

The following colours/lines on the FASTgraphs chart shown below represent: 

Black line: Price

White line: Dividend

Orange line: Graham average of usually 15 P/E (price/earnings) for most stocks

Blue line: Normal P/E

Dashed or dotted lines: Estimates only

Green area: Earnings

Green dots: Purchases

Royal Bank’s price (Black Line) has historically traded very close to its Normal P/E Ratio of 11.95 (Blue Line). Its current Blended P/E is at its highest point in ten years, 14.19. Based on its historical adjusted operating earnings, RY-T is showing signs of overvaluation.

Dividend Yield Theory

The 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. The opposite is true should the current yield be below the historical average.

Royal Bank’s yield has now fallen well below its historical average, signaling overvaluation at today’s price.

Wrap Up

 

These valuation metrics make Royal Bank shares appear overvalued, increasing the probability of a price pullback.

There’s real merit in letting winners run, and I’m not suggesting selling all your Royal Bank (RY-T) shares at this point. However, if you need to free up cash for other opportunities or have already reached your target allocation, selectively ‘pruning’ stocks with elevated valuations—like RY-T—aligns with our established selling guidelines.

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’:

  1. Dividend growth streak: 10 years or more.
  2. Market cap: Minimum one billion dollars.
  3. Diversification: Limit of five companies per sector, preferably two per industry.
  4. 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; it is 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’.

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’ was up and has now increased by +8.9% YTD (income).

Last week, the price return of ‘The List’ was up with a return of +13.3% 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 Dollarama Inc. (DOL-T), up +4.38%; Stantec Inc. (STN-T), up +4.02%; and Canadian National Railway (CNR-T), up +3.51%.

TD Bank (TD-T) was the worst performer last week, down -9.28%.

SYMBOL COMPANY YLD PRICE YTD % DIV YTD % STREAK
ATD-T Alimentation Couche-Tard Inc. 1.0% $72.27 -5.8% $0.70 17.4% 14
BCE-T Bell Canada 8.8% $45.45 -16.1% $3.99 3.1% 15
BIP-N Brookfield Infrastructure Partners 4.8% $34.04 10.9% $1.62 5.9% 16
CCL-B-T CCL Industries Inc. 1.4% $81.34 40.6% $1.16 9.4% 22
CNR-T Canadian National Railway 2.1% $159.43 -4.5% $3.38 7.0% 28
CTC-A-T Canadian Tire 4.4% $158.95 14.7% $7.00 1.4% 13
CU-T Canadian Utilities Limited 5.1% $35.59 10.8% $1.81 0.9% 52
DOL-T Dollarama Inc. 0.2% $144.03 51.6% $0.35 29.5% 13
EMA-T Emera 5.7% $50.63 -0.3% $2.88 3.2% 17
ENB-T Enbridge Inc. 6.5% $56.56 16.9% $3.66 3.1% 28
ENGH-T Enghouse Systems Limited 3.2% $31.23 -8.1% $1.00 18.3% 17
FNV-N Franco Nevada 1.2% $123.57 12.2% $1.44 5.9% 16
FTS-T Fortis Inc. 4.0% $59.74 8.9% $2.39 4.4% 50
IFC-T Intact Financial 1.8% $264.00 29.8% $4.84 10.0% 19
L-T Loblaw Companies Limited 1.1% $177.41 38.0% $1.92 10.0% 12
MFC-T Manulife Financial 3.8% $41.82 44.8% $1.60 9.6% 10
MGA-N Magna 4.6% $41.40 -25.4% $1.90 3.3% 14
MRU-T Metro Inc. 1.6% $84.10 22.8% $1.34 10.7% 29
RY-T Royal Bank of Canada 3.4% $170.38 28.1% $5.72 7.1% 13
SJ-T Stella-Jones Inc. 1.2% $92.66 21.0% $1.12 21.7% 19
STN-T Stantec Inc. 0.7% $116.83 11.6% $0.83 7.8% 12
T-T Telus 6.9% $22.28 -6.1% $1.53 7.1% 20
TD-T TD Bank 5.2% $78.48 -7.3% $4.08 6.3% 13
TFII-N TFI International 1.1% $139.27 6.2% $1.60 10.3% 13
TIH-T Toromont Industries 1.4% $133.89 18.7% $1.92 11.6% 34
TRI-N Thomson Reuters 1.3% $167.26 16.7% $2.16 12.5% 30
TRP-T TC Energy Corp. 6.1% $62.81 20.1% $3.84 3.2% 23
WCN-N Waste Connections 0.6% $181.40 22.4% $1.14 8.6% 14
Averages 3.2% 13.3% 8.9% 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.

Check us out on magicpants.substack.com for more info in this week’s issue….

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