“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 – October 4, 2024

Last updated by BM on October 8, 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 will examine the TC Energy and South Bow restructuring and what we are doing with our South Bow shares.
  • Last week, dividend growth of ‘The List’ stayed the course and has increased by +8.8% YTD (income).
  • Last week, the price of ‘The List’ was down with a return of +12.3% 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

 

“You don’t have to buy at the bottom and sell at the top to be a great investor. Just buy quality companies at good valuations and hold long term.”

– Anonymous

New TC Energy and South Bow Valuations Expected to Surpass Pre-Spin-Off
Intro

 

This week, TC Energy (TRP-T), the largest holding in our model portfolio, completed its restructuring. Investors now own shares in South Bow Corporation (SOBO-T) in addition to (TRP-T) after the spinoff.

CALGARY, Alberta, Oct. 01, 2024 (GLOBE NEWSWIRE) — News Release – TC Energy Corporation (TSX, NYSE: TRP) (TC Energy or the Company) today announced that it has completed the spinoff of its Liquids Pipelines business into South Bow Corporation (South Bow).

The TC Energy common shares will resume “regular way” trading on the TSX and the NYSE on Oct. 2, 2024, under the designation TRP. The South Bow common shares will commence “regular way” trading under the designation SOBO on the TSX on Oct. 2, 2024, but will not trade “regular way” on the NYSE until one trading day after the U.S. Securities and Exchange Commission (SEC) declares South Bow’s registration statement on Form 40-F effective. TC Energy currently expects that the South Bow common shares will commence “regular way” trading on the NYSE on or about Oct. 8, 2024.

Estimated proportionate allocation of adjusted cost base between TC Energy common shares and South Bow common shares is expected to be posted on the TC Energy and South Bow websites when available during fourth quarter 2024.

What did TC Energy shareholders receive in the spinoff?

TC Energy shareholders received:

1 new TC Energy Common Share for each TC Energy share they held on the Distribution Record Date of Sept. 25, 2024

0.2 of a South Bow Common Share for each TC Energy share they held on the Distribution Record Date of Sept. 25, 2024

What happens to my TC Energy dividend?

TC Energy and South Bow each intend to declare independent dividends for the quarter ended Dec. 31, 2024 on Nov. 7, 2024, reflecting their respective proportionate amounts of TC Energy’s dividend prior to the Arrangement. The dividends are expected to be paid on Jan. 31, 2025, to shareholders of record on Dec. 31, 2024. All dividends, including the expected dividends to be declared on Nov. 7, 2024, are subject to the discretion and approval of each company’s respective Board of Directors.

The Arrangement occurred on a “tax-free” basis. What does it mean to me as a shareholder?

The use of the phrase “tax-free” in the 2024 Management Information Circular is a reference to the tax-deferred nature of the Arrangement. The receipt of South Bow Common Shares pursuant to the Arrangement should not result in taxable income or gain to Holders, (as defined in the Management Information Circular) for Canadian federal income tax purposes or U.S. federal income tax purposes.

Estimated proportionate allocation of adjusted cost base between TC Energy Common Shares and South Bow Common Shares is expected to be posted on the TC Energy and South Bow websites when available during the fourth quarter in 2024.

Source: TC Energy website

Wrap Up

 

One of the main drivers of the spinoff was to unlock value in TC Energy’s shares. This seems to have worked. As of Friday’s closing, the combined value of both companies has already exceeded that of the previously integrated firm.

As a matter of process, we sell our spin-off shares soon after receiving them as the new entity does not meet our criterion as an investable dividend growth company.

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 +8.8% YTD (income).

Last week, the price return of ‘The List’ was down with a return of +12.3% 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 Stella-Jones Inc. (SJ-T), up +4.57%; Stantec Inc. (STN-T), up +3.47%; and Manulife Financial (MFC-T), up +2.75%.

Magna (MGA-N) was the worst performer last week, down -3.86%.

SYMBOL COMPANY YLD PRICE YTD % DIV YTD % STREAK
ATD-T Alimentation Couche-Tard Inc. 0.9% $73.96 -3.6% $0.70 17.4% 14
BCE-T Bell Canada 8.7% $45.76 -15.5% $3.99 3.1% 15
BIP-N Brookfield Infrastructure Partners 4.7% $34.67 13.0% $1.62 5.9% 16
CCL-B-T CCL Industries Inc. 1.5% $79.75 37.9% $1.16 9.4% 22
CNR-T Canadian National Railway 2.2% $154.03 -7.7% $3.38 7.0% 28
CTC-A-T Canadian Tire 4.4% $158.13 14.1% $7.00 1.4% 13
CU-T Canadian Utilities Limited 5.1% $35.58 10.8% $1.81 0.9% 52
DOL-T Dollarama Inc. 0.3% $137.98 45.2% $0.35 29.5% 13
EMA-T Emera 5.5% $52.14 2.7% $2.88 3.2% 17
ENB-T Enbridge Inc. 6.6% $55.76 15.2% $3.66 3.1% 28
ENGH-T Enghouse Systems Limited 3.1% $32.60 -4.0% $1.00 18.3% 17
FNV-N Franco Nevada 1.2% $120.86 9.7% $1.44 5.9% 16
FTS-T Fortis Inc. 4.0% $60.33 10.0% $2.39 4.4% 50
IFC-T Intact Financial 1.9% $258.45 27.1% $4.84 10.0% 19
L-T Loblaw Companies Limited 1.1% $172.91 34.5% $1.92 10.0% 12
MFC-T Manulife Financial 3.9% $41.03 42.1% $1.60 9.6% 10
MGA-N Magna 4.6% $41.08 -26.0% $1.90 3.3% 14
MRU-T Metro Inc. 1.6% $83.30 21.6% $1.34 10.7% 29
RY-T Royal Bank of Canada 3.4% $166.20 24.9% $5.72 7.1% 13
SJ-T Stella-Jones Inc. 1.2% $91.33 19.2% $1.12 21.7% 19
STN-T Stantec Inc. 0.7% $112.32 7.3% $0.83 7.8% 12
T-T Telus 6.9% $22.11 -6.8% $1.53 7.1% 20
TD-T TD Bank 4.7% $86.51 2.1% $4.08 6.3% 13
TFII-N TFI International 1.2% $135.83 3.5% $1.60 10.3% 13
TIH-T Toromont Industries 1.5% $130.00 15.2% $1.92 11.6% 34
TRI-N Thomson Reuters 1.3% $165.92 15.8% $2.16 10.2% 30
TRP-T TC Energy Corp. 6.3% $61.22 17.0% $3.84 3.2% 23
WCN-N Waste Connections 0.6% $176.41 19.1% $1.14 8.6% 14
Averages 3.2% 12.3% 8.8% 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….

MP Market Review – September 27, 2024

Last updated by BM on October 1, 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 learn why dividend growth is the true hedge when it comes to owning inflation.
  • Last week, dividend growth of ‘The List’ stayed the course and has increased by +8.8% YTD (income).
  • Last week, the price of ‘The List’ was up with a return of +13.5% YTD (capital).
  • Last week, there was one dividend announcement from a company 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

 

“Inflation may have become the oldest form of government finance. It may also have been the oldest form of political confidence game used by leaders to exact tribute from constituents, older even than taxes, and inflation has kept those honored places in human affairs to this day…For at least four thousand years of recorded history, man has known inflation.”

-Jens O. Parsson, Dying of Money

How to Own Inflation: Why Dividend Growth is the True Hedge

Many of us mistakenly attribute inflation to rising prices alone, often believing it’s driven by the greed of businesses. However, the true cause of inflation is the expansion of the money supply by the governement. As more money enters circulation and is spent repeatedly, consumer demand rises, pushing up the cost of goods—essentially, too much money chasing too few goods.

Federal governments, particularly those with significant debt, increase the money supply to bring on inflation which will reduce the real value of their debt and boost tax revenue. Given the current state of government balance sheets, it’s reasonable to expect higher inflation will become more common in the future.

So, why discuss inflation in the context of dividend growth investing? Because it can have a profound impact on your retirement planning.

The chart below illustrates how much more you’ll need in 10, 20, or 30 years to cover $75,000 in expenses today at various inflation rates.

Even at 3% inflation, you will need 25% more capital in ten years to pay your expenses. How are you going to get there?

One of the biggest misconceptions in retirement planning is the idea that, as you age, you should shift away from equities and into more fixed-income investments like Bonds. This outdated strategy is often referred to as the “Age Rule.”

The “Age Rule” suggests you subtract your age from 100 to determine the percentage of your portfolio that should be in stocks. For example, at age 65, it recommends 35% in stocks and 65% in bonds and cash. By age 80, your stock allocation would drop to just 20%.

Now, let’s examine what happens to a $100,000 Bond over 10, 20, or 30 years, as inflation steadily erodes its purchasing power.

Do you see the problem here? Your purchasing power on the initial $100,000 investment in Bonds is being eroded over time. In ten years, when you get your initial $100,000 back, your Bond is worth only $73,742 in inflation adjusted dollars. It gets even worse if inflation ticks higher.

With your expenses going up due to inflation and the purchasing power of your capital going down what is a retiree to do?

You need to “own inflation.”

In investing, “owning inflation” means holding assets that either benefit from rising inflation or shield you from its impact. Since inflation steadily erodes the purchasing power of money, it’s crucial to invest in assets that appreciate in value or generate increasing income as inflation rises. This helps preserve and grow your wealth over time.

Two ways dividend growth investors “own inflation” are:

  1. Own stocks of companies with pricing power: Companies that can pass on rising costs to consumers through price increases (like consumer staples or utilities) tend to perform well during inflationary periods.
  2. Own companies with a history of growing dividends. As the companies increase their dividends over time, the income keeps up with or exceeds inflation.

Let’s look at one of our quality dividend growers bought ten years ago for contrast to our Bond example above. We will use ten-year data from Fortis Inc. (a utility) as an example.

Investing that same $100,000 in Fortis Inc. shares, not only provides you with rising income from dividends to pay your expenses and combat inflation, but the value of your investment appreciates. For instance, Fortis Inc.’s share price grew from $30 to over $60, your capital more than doubles to over $200,000. Fortis Inc. has been providing a growing dividend for over 50 years so you can back test the previous forty years to see the same scenario play out decade after decade.

By building a portfolio of dividend growth stocks like Fortis Inc., you harness the benefits of price appreciation and rising dividends, preserving and increasing your purchasing power over time. That is how you own inflation and secure your retirement.

In my view, a dividend growth strategy is one of the best inflation hedges available, helping you not only keep pace with inflation but also build substantial wealth.

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 +8.8% YTD (income).

Last week, the price return of ‘The List’ was up with a return of +13.5% 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 Canadian Utilities Limited (CU-T), up +4.38%; Brookfield Infrastructure Partners (BIP-N), up +4.14%; and Enghouse Systems Limited (ENGH-T), up +3.61%.

TFI International (TFII-T) was the worst performer last week, down -5.15%.

SYMBOL COMPANY YLD PRICE YTD % DIV YTD % STREAK
ATD-T Alimentation Couche-Tard Inc. 0.9% $75.32 -1.9% $0.70 17.4% 14
BCE-T Bell Canada 8.4% $47.54 -12.3% $3.99 3.1% 15
BIP-N Brookfield Infrastructure Partners 4.6% $35.19 14.7% $1.62 5.9% 16
CCL-B-T CCL Industries Inc. 1.4% $81.72 41.3% $1.16 9.4% 22
CNR-T Canadian National Railway 2.1% $157.34 -5.7% $3.38 7.0% 28
CTC-A-T Canadian Tire 4.3% $161.20 16.3% $7.00 1.4% 13
CU-T Canadian Utilities Limited 5.0% $36.01 12.1% $1.81 0.9% 52
DOL-T Dollarama Inc. 0.3% $136.85 44.0% $0.35 29.5% 13
EMA-T Emera 5.4% $53.64 5.6% $2.88 3.2% 17
ENB-T Enbridge Inc. 6.7% $55.03 13.7% $3.66 3.1% 28
ENGH-T Enghouse Systems Limited 3.0% $33.30 -2.0% $1.00 18.3% 17
FNV-N Franco Nevada 1.1% $125.51 14.0% $1.44 5.9% 16
FTS-T Fortis Inc. 3.9% $61.57 12.3% $2.39 4.4% 50
IFC-T Intact Financial 1.9% $261.13 28.4% $4.84 10.0% 19
L-T Loblaw Companies Limited 1.1% $177.74 38.3% $1.92 10.0% 12
MFC-T Manulife Financial 4.0% $39.93 38.3% $1.60 9.6% 10
MGA-N Magna 4.4% $42.73 -23.0% $1.90 3.3% 14
MRU-T Metro Inc. 1.6% $84.84 23.8% $1.34 10.7% 29
RY-T Royal Bank of Canada 3.4% $167.84 26.2% $5.72 7.1% 13
SJ-T Stella-Jones Inc. 1.3% $87.34 14.0% $1.12 21.7% 19
STN-T Stantec Inc. 0.8% $108.55 3.7% $0.83 7.8% 12
T-T Telus 6.8% $22.66 -4.5% $1.53 7.1% 20
TD-T TD Bank 4.8% $85.68 1.2% $4.08 6.3% 13
TFII-N TFI International 1.2% $137.86 5.1% $1.60 10.3% 13
TIH-T Toromont Industries 1.5% $130.66 15.8% $1.92 11.6% 34
TRI-N Thomson Reuters 1.3% $169.76 18.4% $2.16 10.2% 30
TRP-T TC Energy Corp. 6.1% $63.18 20.8% $3.84 3.2% 23
WCN-N Waste Connections 0.6% $177.34 19.7% $1.14 8.6% 14
Averages 3.1% 13.5% 8.8% 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….

MP Market Review – September 20, 2024

Last updated by BM on September 24, 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 share a ‘New Addition to Our ‘Timely Ten’: Couche-Tard’s 7-Eleven Bid: Risk or Opportunity for Investors?’.
  • Last week, dividend growth of ‘The List’ stayed the course and has increased by +8.8% YTD (income).
  • Last week, the price of ‘The List’ was down slightly with a return of +12.9% YTD (capital).
  • Last week, there was one dividend announcement from a company 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

 

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

– Tom Connolly

New Addition to Our ‘Timely Ten’: Couche-Tard’s 7-Eleven Bid: Risk or Opportunity for Investors?

This month, we welcome a new candidate to our ‘Timely Ten’ list of the most undervalued dividend growth stocks: Alimentation Couche-Tard Inc. (Couche-Tard). It has climbed several spots, replacing Emera in our ‘Timely Ten.’

Recently, Couche-Tard approached Seven & i Holdings Co. Ltd., the Japanese parent company of 7-Eleven, with a bold acquisition proposal. If successful, this move would position the Montreal-based company as a dominant force in the global convenience store industry.

The market, however, is speculating that to acquire 7-Eleven, Couche-Tard may need to take on significant debt and potentially divest some U.S. assets, creating uncertainty. But where there is uncertainty, there can also be opportunity.

We saw a similar scenario in early 2021 when Couche-Tard made a $25 billion bid for European grocer Carrefour SA. The stock dropped below $40, and we seized that moment to buy shares (Green Dot) in this high-quality company.

The bid for Carrefour was ultimately dropped after strong opposition from the French government, which cited the need to “preserve the country’s food security and sovereignty.” Despite this setback, Couche-Tard’s stock more than doubled in value afterward.

The key takeaway is that while we can’t predict the future, investing in quality dividend growers that meet our valuation criteria increases the probability of long-term success. By staying patient and focusing on quality and value, we increase the probability of successful investment outcomes.

Many of the remaining ‘Timely Ten’ have been regulars on the list this year, indicating that their challenges might take longer to resolve. This reinforces our commitment to continuously monitoring all companies on ‘The List,’ as we aim to avoid tying up capital for extended periods in favour of seizing better opportunities in quality companies that have temporarily fallen out of favour.

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’.

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.

While ‘The List’ is not a standalone portfolio, it functions admirably as an initial guide for those seeking to broaden their investment portfolio and attain superior returns in the Canadian stock market. 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 +8.8% YTD (income).

Last week, the 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 Magna (MGA-N), up +4.48%; Enghouse Systems Limited (ENGH-T), up +4.28%; and TD Bank (TD-T), up +3.56%.

Metro Inc. (MRU-T) was the worst performer last week, down -4.00%.

SYMBOL COMPANY YLD PRICE YTD % DIV YTD % STREAK
ATD-T Alimentation Couche-Tard Inc. 0.9% $76.09 -0.9% $0.70 17.4% 14
BCE-T Bell Canada 8.4% $47.56 -12.2% $3.99 3.1% 15
BIP-N Brookfield Infrastructure Partners 4.8% $33.79 10.1% $1.62 5.9% 16
CCL-B-T CCL Industries Inc. 1.4% $81.62 41.1% $1.16 9.4% 22
CNR-T Canadian National Railway 2.1% $158.87 -4.8% $3.38 7.0% 28
CTC-A-T Canadian Tire 4.4% $158.78 14.6% $7.00 1.4% 13
CU-T Canadian Utilities Limited 5.2% $34.50 7.4% $1.81 0.9% 52
DOL-T Dollarama Inc. 0.3% $135.38 42.5% $0.35 29.5% 13
EMA-T Emera 5.5% $52.48 3.3% $2.88 3.2% 17
ENB-T Enbridge Inc. 6.7% $54.98 13.6% $3.66 3.1% 28
ENGH-T Enghouse Systems Limited 3.1% $32.14 -5.4% $1.00 18.3% 17
FNV-N Franco Nevada 1.1% $128.36 16.6% $1.44 5.9% 16
FTS-T Fortis Inc. 3.9% $60.60 10.5% $2.36 3.3% 50
IFC-T Intact Financial 1.9% $255.27 25.6% $4.84 10.0% 19
L-T Loblaw Companies Limited 1.1% $174.46 35.7% $1.92 10.0% 12
MFC-T Manulife Financial 4.1% $38.99 35.0% $1.60 9.6% 10
MGA-N Magna 4.5% $42.00 -24.3% $1.90 3.3% 14
MRU-T Metro Inc. 1.6% $83.00 21.2% $1.34 10.7% 29
RY-T Royal Bank of Canada 3.5% $165.30 24.2% $5.72 7.1% 13
SJ-T Stella-Jones Inc. 1.2% $91.64 19.6% $1.12 21.7% 19
STN-T Stantec Inc. 0.8% $108.81 4.0% $0.83 7.8% 12
T-T Telus 6.7% $22.75 -4.1% $1.53 7.1% 20
TD-T TD Bank 4.7% $87.55 3.4% $4.08 6.3% 13
TFII-N TFI International 1.1% $145.35 10.8% $1.60 10.3% 13
TIH-T Toromont Industries 1.5% $129.81 15.1% $1.92 11.6% 34
TRI-N Thomson Reuters 1.3% $169.46 18.2% $2.16 10.2% 30
TRP-T TC Energy Corp. 6.1% $62.65 19.8% $3.84 3.2% 23
WCN-N Waste Connections 0.6% $179.15 20.9% $1.14 8.6% 14
Averages 3.2% 12.9% 8.8% 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….

MP Market Review – September 13, 2024

Last updated by BM on September 17, 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 share ‘How a Strategic Plan Drives Our Investing Success’.
  • Last week, dividend growth of ‘The List’ stayed the course and has increased by +8.8% YTD (income).
  • Last week, the price of ‘The List’ was up with a return of +13.0% YTD (capital).
  • Last week, there were no dividend announcements from companies on ‘The List’.
  • Last week, there was one earnings report from a company on ‘The List’.
  • This week, no companies on ‘The List’ are due to report earnings.

DGI Clipboard

 

“The best way to measure your investing success is not by whether you’re beating the market but by whether you’ve put in place a financial plan and a behavioral discipline that are likely to get you where you want to go.”

– Ben Graham, The Intelligent Investor

Beyond Stock Picking: How a Strategic Plan Drives Our Investing Success

As a dividend growth investor, I’ve always focused on evaluating my performance from a portfolio perspective rather than fixating on individual stock selections. Viewing your portfolio performance in aggregate and maintaining a long-term outlook helps keep you grounded, ensuring you stay committed to your process rather than dwelling on the highs and lows.

Periodically, I review my past trades to assess how my portfolio has performed over time and how my original process is working. While the MP Wealth-Builder Model Portfolio (CDN) is relatively new, my journey in dividend growth investing (DGI) began in 2012. Below, I share some key insights from my Canadian DGI portfolio during that time.

Although the sample size is small, with only seven trades, the data offers several key takeaways that should inspire confidence in those new to our strategy and process.

First, both our dividends and capital have seen remarkable growth. On average, our dividend income has surged by 122%, while our capital has appreciated by 89%. Notably, two of the five stocks in our portfolio have earned a place in the exclusive “double-double” club, and the overall portfolio is nearing this milestone. A company qualifies for our “double-double” club when both its income and capital have doubled from the original investment.

Second, our dividend return has reached 7.37% on the original capital invested over a decade ago—and it’s still growing. This means we’re now outperforming the historical average return of the stock market (~7%) based on dividends alone.

Lastly, we’ve achieved all this despite the price of one of our key holdings, Bell Canada, remaining relatively flat during this period.

As Ben Graham wisely said, I believe we’ve “…put in place a financial plan and a behavioral discipline that are likely to get you where you want to go.”

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.

While ‘The List’ is not a standalone portfolio, it functions admirably as an initial guide for those seeking to broaden their investment portfolio and attain superior returns in the Canadian stock market. 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 +8.8% YTD (income).

Last week, the 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 Brookfield Infrastructure Partners (BIP-N), up +6.79%; Franco Nevada (FNV-N), up +6.15%; and Toromont Industries (TIH-T), up +5.31%.

Alimentation Couche-Tard Inc. (ATD-T) was the worst performer last week, down -2.42%.

SYMBOL COMPANY YLD PRICE YTD % DIV YTD % STREAK
ATD-T Alimentation Couche-Tard Inc. 0.9% $75.00 -2.3% $0.70 17.4% 14
BCE-T Bell Canada 8.3% $48.11 -11.2% $3.99 3.1% 15
BIP-N Brookfield Infrastructure Partners 4.9% $33.19 8.1% $1.62 5.9% 16
CCL-B-T CCL Industries Inc. 1.4% $80.85 39.8% $1.16 9.4% 22
CNR-T Canadian National Railway 2.1% $161.44 -3.3% $3.38 7.0% 28
CTC-A-T Canadian Tire 4.4% $158.81 14.6% $7.00 1.4% 13
CU-T Canadian Utilities Limited 5.1% $35.75 11.3% $1.81 0.9% 52
DOL-T Dollarama Inc. 0.3% $133.48 40.5% $0.35 29.5% 13
EMA-T Emera 5.4% $53.37 5.1% $2.87 3.0% 17
ENB-T Enbridge Inc. 6.6% $55.37 14.4% $3.66 3.1% 28
ENGH-T Enghouse Systems Limited 3.2% $30.82 -9.3% $1.00 18.3% 17
FNV-N Franco Nevada 1.2% $125.13 13.6% $1.44 5.9% 16
FTS-T Fortis Inc. 3.8% $61.84 12.7% $2.36 3.3% 50
IFC-T Intact Financial 1.9% $253.16 24.5% $4.84 10.0% 19
L-T Loblaw Companies Limited 1.1% $180.47 40.4% $1.92 10.0% 12
MFC-T Manulife Financial 4.2% $38.15 32.1% $1.60 9.6% 10
MGA-N Magna 4.7% $40.20 -27.6% $1.90 3.3% 14
MRU-T Metro Inc. 1.5% $86.46 26.2% $1.34 10.7% 29
RY-T Royal Bank of Canada 3.4% $168.02 26.3% $5.72 7.1% 13
SJ-T Stella-Jones Inc. 1.2% $93.20 21.7% $1.12 21.7% 19
STN-T Stantec Inc. 0.8% $105.15 0.5% $0.83 7.8% 12
T-T Telus 6.7% $23.01 -3.0% $1.53 7.1% 20
TD-T TD Bank 4.8% $84.54 -0.2% $4.08 6.3% 13
TFII-N TFI International 1.1% $142.98 9.0% $1.60 10.3% 13
TIH-T Toromont Industries 1.5% $127.17 12.7% $1.92 11.6% 34
TRI-N Thomson Reuters 1.3% $172.70 20.5% $2.16 10.2% 30
TRP-T TC Energy Corp. 6.1% $63.27 21.0% $3.84 3.2% 23
WCN-N Waste Connections 0.6% $185.68 25.3% $1.14 8.6% 14
Averages 3.2% 13.0% 8.8% 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….

MP Market Review – September 6, 2024

Last updated by BM on September 10, 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 share ‘Why DGI is the Key to Long-Term Wealth: Our Model Portfolio Quarterly Update’.
  • Last week, dividend growth of ‘The List’ stayed the course and has increased by +8.8% YTD (income).
  • Last week, the price of ‘The List’ was down slightly with a return of +10.4% 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, one company on ‘The List’ is due to report earnings.

DGI Clipboard

 

“I measure our progress primarily on the basis of the income we are collecting and the growth of that income through dividend increases.”

– Josh Peters

Why DGI is the Key to Long-Term Wealth: Our Model Portfolio Quarterly Update

For those new to the blog, our model portfolio is being built and managed based on an initial $100,000 investment over the first four years of our business plan, with monthly contributions of $1,000 beginning in year two. The inception date was May 1, 2022. The portfolio is used as a template for those wanting to start with Dividend Growth Investing (DGI) before committing to more significant amounts of capital.

PAID subscribers have access to every buy/sell alert and full quarterly reviews as we build a powerful dividend growth portfolio of high-quality Canadian companies.

In our most recent quarterly report of our Wealth-Builder Model Portfolio (CDN), one chart stood out for me and reinforced my commitment to our DGI strategy. Contrary to the volatility of the market, our income shows a steady and predictable pattern.

As of July 31, 2024, we have invested $79,162 of our initial capital according to our model portfolio business plan. Our annual income now stands at $3,094, resulting in a current portfolio yield of 3.9% and growing ($3,094 divided by $79,162). Our yield will eventually surpass what can be earned from other fixed-income investments thanks to dividend growth, but there’s another component to our strategy that fixed-income alternatives lack: capital growth.

While we have predictability of income growth with our DGI strategy, capital growth is driven by market forces—requiring patience. As dividends increase, the share price typically follows suit over time. We are starting to see this correlation in our model portfolio. Our portfolio value has now increased to $89,957 (including dividends and dividend reinvestment).

Wrap Up

 

We understand that our portfolio value will eventually rise alongside our growing cash flow, but tuning out the market noise can still be challenging. When I was new to DGI, I found it helpful to focus on the income side of our strategy, especially the steady growth that comes with each dividend increase. Capital growth will follow naturally over time.

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.

While ‘The List’ is not a standalone portfolio, it functions admirably as an initial guide for those seeking to broaden their investment portfolio and attain superior returns in the Canadian stock market. 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 +8.8% YTD (income).

Last week, the price return of ‘The List’ was down slightly with a return of +10.4% 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 Telus (T-T), up +5.01%; Enghouse Systems Limited (ENGH-T), up +4.15%; and CCL Industries Inc. (CCL-T), up +3.32%.

Magna (MGA-N) was the worst performer last week, down -6.35%.

SYMBOL COMPANY YLD PRICE YTD % DIV YTD % STREAK
ATD-T Alimentation Couche-Tard Inc. 0.9% $76.86 0.1% $0.70 17.4% 14
BCE-T Bell Canada 8.2% $48.50 -10.5% $3.99 3.1% 15
BIP-N Brookfield Infrastructure Partners 5.2% $31.08 1.3% $1.62 5.9% 16
CCL-B-T CCL Industries Inc. 1.5% $79.61 37.6% $1.16 9.4% 22
CNR-T Canadian National Railway 2.2% $156.46 -6.2% $3.38 7.0% 28
CTC-A-T Canadian Tire 4.5% $156.00 12.6% $7.00 1.4% 13
CU-T Canadian Utilities Limited 5.2% $34.54 7.5% $1.81 0.9% 52
DOL-T Dollarama Inc. 0.3% $128.27 35.0% $0.35 29.5% 13
EMA-T Emera 5.6% $51.13 0.7% $2.87 3.0% 17
ENB-T Enbridge Inc. 6.7% $54.79 13.2% $3.66 3.1% 28
ENGH-T Enghouse Systems Limited 3.3% $30.61 -9.9% $1.00 18.3% 17
FNV-N Franco Nevada 1.2% $117.88 7.0% $1.44 5.9% 16
FTS-T Fortis Inc. 3.9% $60.52 10.3% $2.36 3.3% 50
IFC-T Intact Financial 1.9% $250.64 23.3% $4.84 10.0% 19
L-T Loblaw Companies Limited 1.1% $174.25 35.6% $1.92 10.0% 12
MFC-T Manulife Financial 4.4% $36.73 27.2% $1.60 9.6% 10
MGA-N Magna 4.8% $39.36 -29.1% $1.90 3.3% 14
MRU-T Metro Inc. 1.6% $84.91 23.9% $1.34 10.7% 29
RY-T Royal Bank of Canada 3.5% $164.08 23.3% $5.72 7.1% 13
SJ-T Stella-Jones Inc. 1.2% $92.25 20.4% $1.12 21.7% 19
STN-T Stantec Inc. 0.8% $105.70 1.0% $0.83 7.8% 12
T-T Telus 6.7% $22.86 -3.6% $1.53 7.1% 20
TD-T TD Bank 5.0% $81.89 -3.3% $4.08 6.3% 13
TFII-N TFI International 1.1% $139.81 6.6% $1.60 10.3% 13
TIH-T Toromont Industries 1.6% $120.76 7.1% $1.92 11.6% 34
TRI-N Thomson Reuters 1.3% $166.24 16.0% $2.16 10.2% 30
TRP-T TC Energy Corp. 6.1% $63.34 21.1% $3.84 3.2% 23
WCN-N Waste Connections 0.6% $182.62 23.3% $1.14 8.6% 14
Averages 3.2% 10.4% 8.8% 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….

MP Market Review – August 30, 2024

Last updated by BM on September 3, 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’.

  • Learning from History is Crucial, But the Future Holds the Profits
  • Last week, dividend growth of ‘The List’ stayed the course and has increased by +8.8% YTD (income).
  • Last week, the price of ‘The List’ was up again with a return of +11.0% YTD (capital).
  • Last week, there were no dividend announcements from companies on ‘The List’.
  • Last week, there was one earnings report from a company on ‘The List’.
  • This week, two companies on ‘The List’ are due to report earnings.

DGI Clipboard

 

“You learn from the past, but you make money on the future.” 

-Chuck Carnevale

Learning from History is Crucial, But the Future Holds the Profits

It is no secret that you will find that many of the quotes I reference in my articles come from my mentors, Tom Connolly and Chuck Carnevale. The latter being the co-founder of FASTgraphs (Fundamentals Analyzer Software Tool), a popular investment tool that helps investors visualize the relationship between a company’s stock price and its earnings, dividends, and other financial metrics over time.

The quote above encapsulates Mr. Carnevale’s investment philosophy, which emphasizes the importance of learning from historical data and experiences while focusing on future prospects to achieve financial success. It reflects his belief in using past performance as a guide but making investment decisions based on future potential.

Forecasting potential returns can be challenging, especially when it comes to the reliability of the data you use. Our ‘News’ section this week delves deeper into this topic. Rather than guessing or relying on hunches, it’s crucial to calculate reasonable probabilities based on the best information available.

For this reason, we find the forecasting tool within the FASTgraphs application to be an invaluable resource. To illustrate, let’s consider our recent purchase of Fortis Inc. We selected December 31, 2025, as the target date for our forecast. This date is close enough to today to provide an accurate and meaningful analysis.

Here we are looking to answer the question…What rate of return can I reasonably expect to make on an investment today?

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

Black line: Price

Blue line: Normal P/E

Green dot: Purchase price

Red dot: Estimated price at December 31, 2025

Historical Chart

Over the past decade, Fortis Inc.’s stock price has shown a strong correlation with its Normal P/E Ratio. Historically, purchasing shares when the price falls below this Normal P/E Ratio has proven to be a sound investment strategy, particularly for those with a long-term investment horizon.

When using the Forecasting feature in FASTgraphs, it’s essential to choose the appropriate forecasting method. Given the historical correlation between Fortis’s price and its Normal P/E Ratio, we opt for the Normal Multiple method to guide our projections.

Forecast

Next, we select the Historical Normal P/E Ratio to estimate our potential future returns. We prefer the Five-Year Normal Price/Earnings Ratio (5FY Normal P/E of 19.75x) because it offers a more recent and relevant reflection of price versus earnings. After that, we choose the time frame for our forecast. If Fortis Inc. returns to its Normal Five-Year P/E trading range by December 31, 2025, we project an annualized return of 19.46%.

Continuing with the data from the FASTgraphs tool, we move to the Analyst Scorecard. Here, we assess the predictability of earnings and the analysts’ track record for accurately forecasting them.

Analyst Scorecard

The Analyst Scorecard reveals that analysts have shown remarkable accuracy in predicting Fortis Inc.’s one-year and two-year adjusted operating earnings. We’re also encouraged by the fact that 14 analysts currently cover Fortis Inc.

Notably, analysts have achieved a perfect track record (100%) in forecasting earnings over these time frames. Given that our forecast relies on these estimates, we felt confident adding to our position in Fortis Inc. in early July.

Wrap Up

When we purchased Fortis Inc., we already knew it was a quality company trading at a sensible price, per our quality indicators and valuation analysis. The icing on the cake was forecasting a 19.46% annualized return in less than eighteen months.

We need to revisit our analysis in December 2025 to test our methodology. The good news is that we are off to a fast start.

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.

While ‘The List’ is not a standalone portfolio, it functions admirably as an initial guide for those seeking to broaden their investment portfolio and attain superior returns in the Canadian stock market. 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 +8.8% YTD (income).

Last week, the price return of ‘The List’ was up again with a return of +11.0% 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 Royal Bank of Canada (RY-T), up +4.41%; Thomson Reuters (TRI-N), up +2.97%; and TC Energy Corp. (TRP-T), up +2.51%.

Stantec Inc. (STN-T) was the worst performer last week, down -3.61%.

SYMBOL COMPANY YLD PRICE YTD % DIV YTD % STREAK
ATD-T Alimentation Couche-Tard Inc. 0.9% $76.93 0.2% $0.70 17.4% 14
BCE-T Bell Canada 8.5% $47.21 -12.9% $3.99 3.1% 15
BIP-N Brookfield Infrastructure Partners 5.0% $32.15 4.8% $1.62 5.9% 16
CCL-B-T CCL Industries Inc. 1.5% $77.05 33.2% $1.16 9.4% 22
CNR-T Canadian National Railway 2.1% $158.79 -4.8% $3.38 7.0% 28
CTC-A-T Canadian Tire 4.6% $153.64 10.9% $7.00 1.4% 13
CU-T Canadian Utilities Limited 5.3% $34.00 5.9% $1.81 0.9% 52
DOL-T Dollarama Inc. 0.3% $136.50 43.7% $0.35 29.5% 13
EMA-T Emera 5.7% $50.75 -0.1% $2.87 3.0% 17
ENB-T Enbridge Inc. 6.8% $54.22 12.0% $3.66 3.1% 28
ENGH-T Enghouse Systems Limited 3.4% $29.39 -13.5% $1.00 18.3% 17
FNV-N Franco Nevada 1.2% $122.15 10.9% $1.44 5.9% 16
FTS-T Fortis Inc. 4.0% $59.30 8.1% $2.36 3.3% 50
IFC-T Intact Financial 1.9% $253.63 24.7% $4.84 10.0% 19
L-T Loblaw Companies Limited 1.1% $175.88 36.8% $1.92 10.0% 12
MFC-T Manulife Financial 4.3% $37.21 28.8% $1.60 9.6% 10
MGA-N Magna 4.5% $42.03 -24.3% $1.90 3.3% 14
MRU-T Metro Inc. 1.6% $84.66 23.6% $1.34 10.7% 29
RY-T Royal Bank of Canada 3.5% $162.98 22.5% $5.72 7.1% 13
SJ-T Stella-Jones Inc. 1.2% $92.80 21.1% $1.12 21.7% 19
STN-T Stantec Inc. 0.7% $110.37 5.5% $0.83 7.8% 12
T-T Telus 7.0% $21.77 -8.2% $1.53 7.1% 20
TD-T TD Bank 5.1% $80.75 -4.7% $4.08 6.3% 13
TFII-N TFI International 1.1% $148.13 12.9% $1.60 10.3% 13
TIH-T Toromont Industries 1.6% $120.67 7.0% $1.92 11.6% 34
TRI-N Thomson Reuters 1.3% $171.18 19.4% $2.16 10.2% 30
TRP-T TC Energy Corp. 6.2% $62.42 19.3% $3.84 3.2% 23
WCN-N Waste Connections 0.6% $186.50 25.9% $1.14 8.6% 14
Averages 3.2% 11.0% 8.8% 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….

MP Market Review – August 23, 2024

Last updated by BM on August 26, 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’.

  • Investing Isn’t About Perfection—It’s About Winning the Long Game
  • Last week, dividend growth of ‘The List’ stayed the course and has increased by +8.8% YTD (income).
  • Last week, the price of ‘The List’ was up with a return of +10.8% YTD (capital).
  • Last week, there were no dividend announcements from companies on ‘The List’.
  • Last week, there was one earnings report from a company on ‘The List’.
  • This week, one company on ‘The List’ is due to report earnings.

DGI Clipboard

 

“In tennis, perfection is impossible… In the 1,526 singles matches I played in my career, I won almost 80% of those matches… Now, I have a question for all of you… what percentage of the POINTS do you think I won in those matches? Only 54%.”

-Roger Federer

Investing Isn’t About Perfection—It’s About Winning the Long Game

While preparing the latest quarterly report for our model portfolio, I was struck by a quote from Roger Federer. It reminded me of the ‘Timestamps’ chart I include each quarter for our paid subscribers. This chart tracks the performance of our original stock purchases based on their end-of-quarter prices. We derive our portfolio’s winning percentage by calculating the percentage of purchases currently above their original cost.

Federer’s insight is powerful: despite winning 80% of his matches, he only won 54% of the points. This mirrors our experience when investing.

As of July 31, 2024, our winning percentage also stands at 80%. This means that twenty-four of our thirty purchases for the model portfolio are now higher than when we originally bought them. However, this wasn’t always the case. Many of our purchases initially declined before they rose in value, and at times, our winning percentage was barely above 50%.

Like Federer, we focused on the long game and did not get caught up in short-term market fluctuations. We held onto our strong dividend growers and often added to our positions when prices dipped below our initial or second purchase. This confidence in our process, combined with our incremental buying strategy, not only improved our winning percentage but also contributed to higher overall returns in our portfolio as stock prices eventually recovered.

The ‘Timestamps’ chart below illustrates our winning percentage on purchases made in the model portfolio as of July 31, 2024.

We have an advantage over Federer because our game lasts longer. What will our winning percentage look like three, five, or ten years from now? The probability is that it will be significantly higher as dividend growth fuels price appreciation. This is why dividend growth investing (DGI) stands out as one of the safest and most predictable approaches to investing I’ve encountered.

Perfection might be impossible in investing, just as in tennis, but with a long-term horizon, we believe our strategy gets us closer than most.

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.

While ‘The List’ is not a standalone portfolio, it functions admirably as an initial guide for those seeking to broaden their investment portfolio and attain superior returns in the Canadian stock market. 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 +8.8% YTD (income).

Last week, the price return of ‘The List’ was up again with a return of +10.8% YTD (capital).

Even though prices may fluctuate, the dependable growth in our income does not. Stay the course. You will be happy you did.

Last week’s best performers on ‘The List’ were Brookfield Infrastructure Partners (BIP-N), up +4.39%; Magna (MGA-N), up +4.36%; and Canadian National Railway (CNR-T), up +2.72%.

Alimentation Couche-Tard Inc. (ATD-T) was the worst performer last week, down -6.34%.

SYMBOL COMPANY YLD PRICE YTD % DIV YTD % STREAK
ATD-T Alimentation Couche-Tard Inc. 0.9% $78.27 2.0% $0.70 17.4% 14
BCE-T Bell Canada 8.4% $47.26 -12.8% $3.99 3.1% 15
BIP-N Brookfield Infrastructure Partners 4.9% $32.79 6.8% $1.62 5.9% 16
CCL-B-T CCL Industries Inc. 1.5% $77.09 33.3% $1.16 9.4% 22
CNR-T Canadian National Railway 2.1% $158.71 -4.9% $3.38 7.0% 28
CTC-A-T Canadian Tire 4.5% $154.93 11.8% $7.00 1.4% 13
CU-T Canadian Utilities Limited 5.5% $33.18 3.3% $1.81 0.9% 52
DOL-T Dollarama Inc. 0.3% $135.18 42.3% $0.35 29.5% 13
EMA-T Emera 5.7% $50.38 -0.8% $2.87 3.0% 17
ENB-T Enbridge Inc. 6.8% $53.60 10.7% $3.66 3.1% 28
ENGH-T Enghouse Systems Limited 3.3% $30.01 -11.7% $1.00 18.3% 17
FNV-N Franco Nevada 1.2% $123.54 12.2% $1.44 5.9% 16
FTS-T Fortis Inc. 4.0% $59.49 8.5% $2.36 3.3% 50
IFC-T Intact Financial 1.9% $252.52 24.2% $4.84 10.0% 19
L-T Loblaw Companies Limited 1.1% $172.91 34.5% $1.92 10.0% 12
MFC-T Manulife Financial 4.4% $36.68 27.0% $1.60 9.6% 10
MGA-N Magna 4.5% $42.56 -23.3% $1.90 3.3% 14
MRU-T Metro Inc. 1.6% $84.00 22.6% $1.34 10.7% 29
RY-T Royal Bank of Canada 3.7% $156.09 17.3% $5.72 7.1% 13
SJ-T Stella-Jones Inc. 1.2% $92.11 20.2% $1.12 21.7% 19
STN-T Stantec Inc. 0.7% $114.50 9.4% $0.83 7.8% 12
T-T Telus 7.0% $21.73 -8.4% $1.53 7.1% 20
TD-T TD Bank 5.1% $80.18 -5.3% $4.08 6.3% 13
TFII-N TFI International 1.1% $150.13 14.4% $1.60 10.3% 13
TIH-T Toromont Industries 1.6% $123.60 9.6% $1.92 11.6% 34
TRI-N Thomson Reuters 1.3% $166.24 16.0% $2.16 10.2% 30
TRP-T TC Energy Corp. 6.3% $60.89 16.4% $3.84 3.2% 23
WCN-N Waste Connections 0.6% $186.43 25.8% $1.14 8.6% 14
Averages 3.3% 10.8% 8.8% 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….

MP Market Review – August 16, 2024

Last updated by BM on August 19, 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’.

  • Timely Ten: Two High-Quality Companies Make the List.
  • Last week, dividend growth of ‘The List’ stayed the course and has increased by +8.8% YTD (income).
  • Last week, the price of ‘The List’ was up with a return of +10.0% 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, one company on ‘The List’ is 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: Two High-Quality Companies Make the List

This month’s edition of the ‘Timely Ten’ brings both familiar names and a notable newcomer to our lineup of the top ten most undervalued companies from ‘The List,’ as determined by dividend yield theory.

While many of the ‘Timely Ten’ remain unchanged from last month, there’s a significant switch: Canadian National Railway has replaced TC Energy Corp., which surged 18% recently and dropped out of the top ten. For those who conducted their due diligence and invested, it’s been a rewarding journey. We strategically added TC Energy Corp. to our model portfolio following our three-dot rule, exercising patience as the market eventually caught up to our insights. The wait was worth it.

Among the group, Canadian National Railway and TD Bank stand out as the highest-quality companies deserving of further analysis. Both are currently navigating short-term challenges, yet their strong historical fundamentals suggest they are poised for long-term success. We have used two dots on each, so we are being a bit more selective as we consider our final allocation.

The rest of the ‘Timely Ten’ have been regulars on the list, indicating that their challenges might take longer to resolve. This reinforces our commitment to continuously monitoring all companies on ‘The List,’ as we aim to avoid tying up capital for extended periods in favor of seizing better opportunities in quality companies that have temporarily fallen out of favour.

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 thin black line have a current price below fair value (sensibly priced). The stocks above the thick black line make up our ‘Timely Ten’.

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.

While ‘The List’ is not a standalone portfolio, it functions admirably as an initial guide for those seeking to broaden their investment portfolio and attain superior returns in the Canadian stock market. 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 +8.8% YTD (income).

Last week, the price return of ‘The List’ was up with a return of +10.0% 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 Dollarama Inc. (DOL-T), up +6.75%; CCL Industries Inc. (CCL-B-T), up +5.78%; and Metro Inc. (MRU-T), up +5.22%.

Telus (T-T) was the worst performer last week, down -2.75%.

SYMBOL COMPANY YLD PRICE YTD % DIV YTD % STREAK
ATD-T Alimentation Couche-Tard Inc. 0.8% $83.57 8.9% $0.70 17.4% 14
BCE-T Bell Canada 8.5% $46.95 -13.3% $3.99 3.1% 15
BIP-N Brookfield Infrastructure Partners 5.2% $31.41 2.3% $1.62 5.9% 16
CCL-B-T CCL Industries Inc. 1.5% $78.19 35.2% $1.16 9.4% 22
CNR-T Canadian National Railway 2.2% $154.51 -7.4% $3.38 7.0% 28
CTC-A-T Canadian Tire 4.6% $151.58 9.4% $7.00 1.4% 13
CU-T Canadian Utilities Limited 5.5% $33.04 2.9% $1.81 0.9% 52
DOL-T Dollarama Inc. 0.3% $135.64 42.7% $0.35 29.5% 13
EMA-T Emera 5.7% $50.06 -1.4% $2.87 3.0% 17
ENB-T Enbridge Inc. 6.9% $52.98 9.5% $3.66 3.1% 28
ENGH-T Enghouse Systems Limited 3.3% $30.14 -11.3% $1.00 18.3% 17
FNV-N Franco Nevada 1.2% $121.79 10.6% $1.44 5.9% 16
FTS-T Fortis Inc. 3.9% $59.94 9.3% $2.36 3.3% 50
IFC-T Intact Financial 1.9% $253.96 24.9% $4.84 10.0% 19
L-T Loblaw Companies Limited 1.1% $172.68 34.3% $1.92 10.0% 12
MFC-T Manulife Financial 4.5% $35.76 23.8% $1.60 9.6% 10
MGA-N Magna 4.7% $40.78 -26.5% $1.90 3.3% 14
MRU-T Metro Inc. 1.6% $83.91 22.5% $1.34 10.7% 29
RY-T Royal Bank of Canada 3.7% $153.20 15.2% $5.72 7.1% 13
SJ-T Stella-Jones Inc. 1.2% $91.12 19.0% $1.12 21.7% 19
STN-T Stantec Inc. 0.7% $113.24 8.2% $0.83 7.8% 12
T-T Telus 7.0% $21.90 -7.7% $1.53 7.1% 20
TD-T TD Bank 5.1% $80.71 -4.7% $4.08 6.3% 13
TFII-N TFI International 1.1% $146.72 11.8% $1.60 10.3% 13
TIH-T Toromont Industries 1.6% $122.54 8.6% $1.92 11.6% 34
TRI-N Thomson Reuters 1.3% $163.58 14.1% $2.16 10.2% 30
TRP-T TC Energy Corp. 6.3% $60.76 16.2% $3.84 3.2% 23
WCN-N Waste Connections 0.6% $181.88 22.8% $1.14 8.6% 14
Averages 3.3% 10.0% 8.8% 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….

MP Market Review – August 9, 2024

Last updated by BM on August 12, 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’.

  • 5 Lessons from Dividend Growth Investing.
  • Last week, dividend growth of ‘The List’ stayed the course and has increased by +8.8% YTD (income).
  • Last week, the price of ‘The List’ was down with a return of +7.3% YTD (capital).
  • Last week, there were no dividend announcements from companies on ‘The List’.
  • Last week, there were six earnings reports from companies on ‘The List’.
  • This week, two companies on ‘The List’ are due to report earnings.

DGI Clipboard

 

“The most durable education is self-education.”

– Charles Swain Thomas

5 Lessons from Dividend Growth Investing

The recent market volatility made me think about the lessons I have learned over the last fifteen years that make periods like last week less emotional than before I discovered dividend growth investing.

Although we are proud of our performance, we have learned a lot over the last fifteen years. Yes, we made some mistakes but thankfully we stuck to our process. Here are five lessons that help us stay calm when the markets are volatile.

Lesson #1

We only buy ‘quality’ companies. Early on, we purchased a few companies that had respectable dividend growth records but were not sufficiently capitalized. When the market turbulence occurred, these companies suffered more than our high-quality companies and were slow to recover. In the end, we exited our positions at a loss and chalked one up to experience.

Lesson #2

Do not buy cyclical companies. Cyclicals can do very well when in favour but can turn quickly when the cycle trends the other way. Case in point are the pure ‘Energy’ companies and Real Estate Investment Trusts (REITs) in Canada. You must incorporate ‘market timing’ into your process and hold on for the ride if you want to add cyclicals to your dividend growth portfolio. For most investors, the emotional rollercoaster is too much.

Lesson #3

Rarely sell your good dividend growers. Early on, we sold some companies too early when they appeared overvalued. They continued to go higher, and we were unable to participate. If you must sell due to perceived overvaluation, sell some and take your position size down but don’t exit totally. If they continue higher, you still have some skin in the game.

Lesson #4

Have a position sizing strategy. First separate your quality companies into ‘Core’ and ‘non-Core’ categories. In Canada, ‘Core’ companies are essential to the economy (e.g., telcos, utilities, banks, railroads, pipelines). Determine, based on your comfort level, what percentage of your investable capital you will allocate to each company in each category.

Lesson #5

Take advantage of market sell-offs. By having confidence in a market sell-off, you can supercharge your investment returns by purchasing more of the quality companies on your list. Over the last fifteen years, we have had a few opportunities to initiate or add to our core positions at a steep discount. We ended up being too conservative when the opportunities presented themselves, and our returns were not as good as they could have been. Chat with yourself before a sell-off on your strategy and try and eliminate the emotion for when the time comes. Trust the process.

Wrap Up

Lesson five resonates with me now, particularly given the recent market volatility. Having weathered many similar weeks over the past decade and a half, we’ve come to recognize the value of seizing opportunities to acquire more of our quality dividend growers at discounted prices. Our confidence in this strategy remains steadfast, and we will continue to act decisively whenever such opportunities present themselves.

Do you have a repeatable investing process? We prefer dividend growth investing because it is less active than other forms, does well in both bull and bear market cycles and no matter what, we always have our growing income to fall back on. If you are still unsure, try it with a percentage of your portfolio and track your performance against other strategies you believe in. If you are like us, you will like what you see.

For those of you who need a little more help, you can always become a paid subscriber to the blog and build your portfolio alongside ours.

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.

While ‘The List’ is not a standalone portfolio, it functions admirably as an initial guide for those seeking to broaden their investment portfolio and attain superior returns in the Canadian stock market. 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 +8.8% YTD (income).

Last week, the price return of ‘The List’ was down with a return of +7.3% 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 Canadian Tire (CTC-A-T), up +6.45%; Thomson Reuters (TRI-N), up +2.55%; and CCL Industries Inc. (CCL-B-T), up +2.20%.

Stantec Inc. (STN-T) was the worst performer last week, down -6.18%.

SYMBOL COMPANY YLD PRICE YTD % DIV YTD % STREAK
ATD-T Alimentation Couche-Tard Inc. 0.9% $79.89 4.1% $0.70 17.4% 14
BCE-T Bell Canada 8.3% $48.03 -11.4% $3.99 3.1% 15
BIP-N Brookfield Infrastructure Partners 5.4% $30.12 -1.9% $1.62 5.9% 16
CCL-B-T CCL Industries Inc. 1.6% $73.92 27.8% $1.16 9.4% 22
CNR-T Canadian National Railway 2.2% $152.21 -8.8% $3.38 7.0% 28
CTC-A-T Canadian Tire 4.7% $149.51 7.9% $7.00 1.4% 13
CU-T Canadian Utilities Limited 5.6% $32.35 0.7% $1.81 0.9% 52
DOL-T Dollarama Inc. 0.3% $127.06 33.7% $0.35 29.5% 13
EMA-T Emera 5.8% $49.15 -3.2% $2.87 3.0% 17
ENB-T Enbridge Inc. 6.9% $53.36 10.2% $3.66 3.1% 28
ENGH-T Enghouse Systems Limited 3.5% $28.96 -14.7% $1.00 18.3% 17
FNV-N Franco Nevada 1.2% $121.11 10.0% $1.44 5.9% 16
FTS-T Fortis Inc. 4.0% $58.99 7.5% $2.36 3.3% 50
IFC-T Intact Financial 2.0% $245.92 21.0% $4.84 10.0% 19
L-T Loblaw Companies Limited 1.2% $164.97 28.3% $1.92 10.0% 12
MFC-T Manulife Financial 4.6% $34.44 19.3% $1.60 9.6% 10
MGA-N Magna 4.9% $38.80 -30.1% $1.90 3.3% 14
MRU-T Metro Inc. 1.7% $79.75 16.4% $1.34 10.7% 29
RY-T Royal Bank of Canada 3.8% $149.84 12.6% $5.72 7.1% 13
SJ-T Stella-Jones Inc. 1.3% $89.31 16.6% $1.12 21.7% 19
STN-T Stantec Inc. 0.8% $109.65 4.8% $0.83 7.8% 12
T-T Telus 6.8% $22.52 -5.1% $1.53 7.1% 20
TD-T TD Bank 5.2% $78.36 -7.5% $4.08 6.3% 13
TFII-N TFI International 1.1% $144.32 10.0% $1.60 10.3% 13
TIH-T Toromont Industries 1.6% $122.42 8.5% $1.92 11.6% 34
TRI-N Thomson Reuters 1.3% $161.45 12.6% $2.16 10.2% 30
TRP-T TC Energy Corp. 6.5% $59.46 13.7% $3.84 3.2% 23
WCN-N Waste Connections 0.6% $180.30 21.7% $1.14 8.6% 14
Averages 3.3% 7.3% 8.8% 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….

MP Market Review – August 2, 2024

Last updated by BM on August 5, 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’.

  • Building a Position Size with Our Three-Dot Rule.
  • Last week, dividend growth of ‘The List’ stayed the course and has increased by +8.8% YTD (income).
  • Last week, the price of ‘The List’ was down with a return of +8.2% YTD (capital).
  • Last week, there were no dividend announcements from companies on ‘The List’.
  • Last week, there were eleven earnings reports from companies on ‘The List’.
  • This week, six companies on ‘The List’ are due to report earnings.

DGI Clipboard

 

“Success in investing has two parts: finding edge and fully taking advantage of it through proper position sizing. Almost all investment firms focus on edge, while position sizing generally gets much less attention.”

-Michael J. Mauboussin

Building a Position Size with Our Three-Dot Rule

In 2016 Michael J. Mauboussin wrote a paper titled ‘Thirty Years: Reflections on the Ten Attributes of Great Investors’. One of those attributes deals with position sizing.

Mauboussin writes, “success in investing has two parts: finding edge and fully taking advantage of it through proper position sizing. Almost all investment firms focus on edge, while position sizing generally gets much less attention.”

He uses the example of card counting in blackjack as a means to finding an edge and incorporating a betting strategy that takes advantage of it when the cards are in your favor.

As dividend growth investors we already know what our ‘edge’ is…buying quality individual dividend growth companies when they are sensibly priced and holding for the growing income. Our strategy for taking advantage of our ‘edge’ requires further explanation.

Three-Dot Rule:

In our business plan, we detail how we use position sizing to give us an edge with our strategy. We set minimum and maximum sizes for each company on ‘The List’ allocating a higher portion of our portfolio to the highest quality companies, ensuring a solid foundation. However, we avoid reaching the maximum allocation for any position immediately, opting for a more gradual approach.

How we enter/exit positions can be critical to our investment returns in the long term. We prefer to enter our positions incrementally to avoid short-term price drops that can discourage new dividend growth investors and can supercharge our returns if done correctly during market volatility. We like to buy incrementally when entering a position. If the price drops 5-10% and nothing fundamentally changes with the company, we will buy more. If we do decide to sell, we exit gradually: sometimes this leads to an entire exit, sometimes only to a partial exit. We typically apply the three-dot rule, where we only buy a declining stock three times within a short period or sell an overvalued stock three times as its price increases.

Having the discipline to buy/sell more during market inefficiencies is a lesson we learned early on and is truly one of the best ways to outperform the markets over time with our dividend growth investing process.

Three-Dot Example (TRP-T):

Our entry into a full position size at TC Energy Corp. is detailed below.

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.

Using Adjusted Operating Earnings as our valuation metric. 

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

Source: FASTgraphs

Over the past eighteen months, we have steadily built our position in TC Energy Corp. within our MP Wealth-Builder Model Portfolio (CDN). Classified as a ‘Core’ company on our list, TC Energy Corp. has a maximum position size of 8% as a guideline.

Following our strategy of buying only at a ‘sensible price’ based on our valuation measures, we initiated a 3.5% position in December 2022 after a selloff in the stock, marking our first dot. In May of last year, after the company announced its Q1 earnings and raised its dividend, we increased our position size to over 6%, marking our second dot. Despite the stock subsequently dropping ~20%, we remained disciplined and continued to follow our process.

Recognizing the continuing undervaluation of this quality company, we increased our position size to a maximum of 8%, marking our third dot. Fast-forward to today. The market for (TRP-T) is currently in rally mode, comfortably above our $53 average cost. Our conviction and discipline prevented us from panicking after the second dot, allowing us to capitalize on the opportunity and enhance our returns.

In an ideal scenario, our investment thesis is validated immediately after our initial purchase, meaning the stock price rises quickly. However, the market often takes some time to recognize the potential we see, making two-dot scenarios more common. As observed in our model portfolio, below are examples of both one-dot and two-dot outcomes.

One-Dot Example (WCN-N):

Source: FASTgraphs

Two-Dot Example (CCL-B-T):

Source: FASTgraphs

Regardless of how many dots (incremental trades) it takes to complete your position size, the key is that your original investment thesis is sound—it just may take time for the market to respond. Adhering to our three-dot rule is how dividend growth investors capitalize on market opportunities. This strategy has increased our total returns when building positions in our quality dividend growth companies.

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.

While ‘The List’ is not a standalone portfolio, it functions admirably as an initial guide for those seeking to broaden their investment portfolio and attain superior returns in the Canadian stock market. 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 +8.8% YTD (income).

Last week, the price return of ‘The List’ was down with a return of +8.2% 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 Telus (T-T), up +4.97%; Fortis Inc. (FTS-T), up +4.02%; and Enbridge Inc. (ENB-T), up +3.73%.

Magna (MGA-N) was the worst performer last week, down -7.12%.

SYMBOL COMPANY YLD PRICE YTD % DIV YTD % STREAK
ATD-T Alimentation Couche-Tard Inc. 0.9% $81.76 6.5% $0.70 17.4% 14
BCE-T Bell Canada 8.4% $47.60 -12.1% $3.99 3.1% 15
BIP-N Brookfield Infrastructure Partners 5.3% $30.35 -1.1% $1.62 5.9% 16
CCL-B-T CCL Industries Inc. 1.6% $72.33 25.1% $1.16 9.4% 22
CNR-T Canadian National Railway 2.2% $155.73 -6.7% $3.38 7.0% 28
CTC-A-T Canadian Tire 5.0% $140.45 1.3% $7.00 1.4% 13
CU-T Canadian Utilities Limited 5.5% $32.95 2.6% $1.81 0.9% 52
DOL-T Dollarama Inc. 0.3% $129.57 36.4% $0.35 29.5% 13
EMA-T Emera 5.8% $49.71 -2.1% $2.87 3.0% 17
ENB-T Enbridge Inc. 7.0% $52.61 8.7% $3.66 3.1% 28
ENGH-T Enghouse Systems Limited 3.3% $30.12 -11.3% $1.00 18.3% 17
FNV-N Franco Nevada 1.2% $125.10 13.6% $1.44 5.9% 16
FTS-T Fortis Inc. 4.0% $59.01 7.6% $2.36 3.3% 50
IFC-T Intact Financial 2.0% $246.76 21.4% $4.84 10.0% 19
L-T Loblaw Companies Limited 1.1% $167.36 30.2% $1.92 10.0% 12
MFC-T Manulife Financial 4.7% $34.29 18.7% $1.60 9.6% 10
MGA-N Magna 4.7% $40.43 -27.2% $1.90 3.3% 14
MRU-T Metro Inc. 1.7% $81.19 18.5% $1.34 10.7% 29
RY-T Royal Bank of Canada 3.8% $148.96 12.0% $5.72 7.1% 13
SJ-T Stella-Jones Inc. 1.2% $91.88 19.9% $1.12 21.7% 19
STN-T Stantec Inc. 0.7% $116.87 11.7% $0.83 7.8% 12
T-T Telus 6.6% $23.04 -2.9% $1.53 7.1% 20
TD-T TD Bank 5.2% $78.65 -7.1% $4.08 6.3% 13
TFII-N TFI International 1.1% $146.88 12.0% $1.60 10.3% 13
TIH-T Toromont Industries 1.5% $124.46 10.3% $1.92 11.6% 34
TRI-N Thomson Reuters 1.4% $157.43 9.8% $2.16 10.2% 30
TRP-T TC Energy Corp. 6.5% $59.29 13.3% $3.84 3.2% 23
WCN-N Waste Connections 0.6% $179.49 21.1% $1.14 8.6% 14
Averages 3.3% 8.2% 8.8% 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….

We buy quality individual dividend growth stocks when they are sensibly priced and hold for the growing income.

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