Category: MP Market Reviews

Intro

I came across a chart in the article referenced in our “DGI News” section below that illustrates something we can all relate to: the erosion of purchasing power as seen through Canadian home prices. While home prices have surged dramatically in dollar terms, their value in forms of money with longer histories, like gold and silver, has barely changed in more than four decades.

Intro

Our Timely Ten lists remain the fastest way to spot potential value opportunities, which explains why they continue to be the most-read articles every month.

Timely Ten (CDN)

goeasy Ltd. climbed to the number three spot in this month’s Timely Ten after a sharp 25% pullback following its Q3 2025 earnings release. Investors clearly were not impressed, but the decline has pushed the stock into more attractive valuation territory.

Magna moved in the opposite direction, slipping to number eight from number five last month. The market responded favourably to its Q3 results.

Our two recent Canadian model portfolio additions, Metro Inc. (MRU-T) and Waste Connections (WCN-N), went in opposite directions with Metro Inc. moving down the list on price strength and Waste Connections cracking the Timely Ten on weakness.

Among this month’s Timely Ten, goeasy Ltd. stands out as the most compelling opportunity. A starting yield above 4.5 percent, a 25 percent dividend increase in 2025, and a payout ratio of under 40 percent all indicate a company that warrants further research from dividend growth investors.

Intro

With roughly half of The List reporting earnings last week, it’s a good time to revisit why earnings matter so much in our dividend growth investing strategy and how they ultimately drive the income and long-term returns we are building toward.

The Significance of Earnings in Dividend Growth Investing

When it comes to dividend growth investing, earnings are the engine that drives everything. They determine not only how much a company can pay shareholders today, but also how much it can sustainably grow those payments in the future. Benjamin Graham, the father of value investing, put it best when he said, “In the short run, the market is a voting machine, but in the long run, it is a weighing machine.” What it weighs, of course, is earnings power, the ability of a business to generate consistent, growing profits.

For dividend growth investors, that principle sits at the core of every decision we make. Our strategy is built on identifying high-quality companies that can reliably grow earnings over time. Why? Because earnings growth funds dividend growth, and dividend growth fuels long-term total returns. In fact, over the long run, the two are almost always aligned. When a company’s earnings compound steadily, its dividends tend to follow a similar upward path.

Earnings: The Foundation of Dividend Safety

A company that earns more each year can afford to raise its dividend without jeopardizing its balance sheet. When earnings stagnate or decline, the payout ratio, the percentage of profits paid out as dividends, begins to creep higher, and that is when risk enters the picture. The most sustainable dividend growth stories are those backed by stable, predictable earnings streams.

That is why our process emphasizes quality first. We look for businesses with durable competitive advantages, recurring revenues, and management teams that allocate capital wisely. These companies tend to produce consistent earnings regardless of economic cycles. Think of regulated utilities, consumer staples, or railways, sectors where steady demand supports steady profits. When earnings are predictable, dividend growth becomes predictable too.

The Power of Compounding Earnings

Earnings growth does not just support dividends; it multiplies value. Over time, compounding earnings translate into higher share prices, creating the classic “double double” effect of dividend growth investing: rising income and rising capital value.

John Bogle, another investing legend, famously summarized expected market returns as:

Future Returns = Dividend Yield + Earnings Growth (Dividend Growth) ± Change in Valuation.

That middle term, earnings growth, is what really moves the needle over decades. Even if valuations fluctuate, companies that consistently grow earnings at 8 to 10 percent annually tend to deliver similar total returns over the long run. Dividend growth often mirrors that same pace, since management teams typically aim to keep payout ratios steady as profits increase.

Why We Focus on Earnings Trends

In our model portfolios, we spend less time predicting next quarter’s numbers and more time studying long-term earnings trajectories. We look for a track record of at least ten years of growth, the accuracy of analyst forecasts, and how management has performed against those expectations. These trends tell us far more about the reliability of future dividends than any headline or market forecast.

When we find companies that pair consistent earnings growth with sensible valuations, we are willing to be patient owners. As earnings compound, dividends follow, and so does total shareholder wealth.

Intro

DGI Scorecard Review

In the final newsletter of each month, we feature both our Canadian and American watchlists in the DGI Scorecard section below. A quick glance at the averages at the bottom of each list shows that year-to-date price returns are not spectacular, especially when compared to high-flying AI stocks, gold miners, or tech-heavy indexes. But this should not discourage you.

Remember, these are equally weighted watchlists, not portfolios. They are designed to track high-quality dividend growth companies, not chase short-term trends. More importantly, the year-to-date dividend growth performance of both watchlists continues to impress, averaging over 7% again this year. That is the real story.

For dividend growth investors, the ultimate goal is to own enough high-quality companies that the income your portfolio produces covers your living expenses. At that point, your dividends effectively become your paycheque in retirement, and the best part is that you can look forward to a raise every year as those companies continue to increase their payouts, no matter what the stock market is doing.

While our strategy emphasizes steady income growth, we never lose sight of capital appreciation. The beauty of compounding is that it often works quietly in the background, gaining momentum over time. Its full impact is rarely visible in the short term but becomes increasingly powerful as dividends are reinvested and earnings grow. Patience is essential during these early phases, as compounding tends to reward consistency rather than speed.

We will take a closer look at how this dynamic is unfolding inside our model portfolios when we release our quarterly performance updates later in November.

Intro

Your Guide to the Magic Pants Dividend Growth Newsletter

Last week, we introduced “The Retirement Plan You Can Write on a Napkin.” We also pointed out that although our dividend growth investing (DGI) strategy is simple to understand, it is not easy. That is why this newsletter exists: to keep you focused through the noise and emotions that come with disciplined long-term investing.

Each issue is designed to help you stay grounded week to week and calm over the long haul. Here’s what to look for:

1. The Opening Snapshot

We begin with a clear headline and a quick snapshot of key DGI metrics:

• Year-to-date dividend and price growth from The List
• Dividend announcements
• Earnings updates

Think of it as your fast weekly briefing.

2. The DGI Clipboard: Where the Coaching Happens

This is the heart of the newsletter. Each week I dig into an investing topic, connect it to our DGI strategy, and share supporting quotes or charts.

It is called the Clipboard because this is where the real coaching happens, just like drawing up plays behind the bench in a hockey game.

3. The DGI Scorecard: Tracking Our Watchlist

Here we track the performance of The List, highlight the week’s top and bottom performers. On the final week of each month, we also share a similar scorecard for The List-USA, giving you a clear view of trends on both sides of the border.

Key metrics to watch:

• Starting yield
• Dividend growth (YTD)
• Price change (YTD)

If price runs ahead of yield plus dividend growth, valuations may be getting stretched. If it lags, opportunities may be emerging.

Reminder: The List is a teaching tool, not a portfolio.

4. DGI News: Cutting Through the Noise

Each week I select a few relevant headlines, share the links, and add a quick take. This saves you time and keeps you informed on what the financial media is saying and the markets are doing.

5. DGI Updates: Company Earnings and Dividend Moves

We finish with updates from companies on The List:

• Dividend announcements
• Quarterly earnings recaps
• Links to full earnings reports

For paid subscribers, this section provides additional research for those wanting to understand the companies we follow a bit better.

Intro

One of the best parts of having a growing subscriber base is the conversations it creates. When people reach out, I get to hear what’s on their minds, their goals, their questions, and their fears.

Our Timely Ten article last week drew nearly 1,000 views. That tells me our dividend growth investing (DGI) strategy is connecting with many of you.

At the same time, I’ve noticed a familiar theme that always surfaces in markets like this. Some investors are feeling the pressure of “missing out” on the surge in tech and gold stocks and the index performance that comes with it.

That feeling is completely normal. Even the most disciplined long-term investors can find it difficult to stay the course when momentum runs hot. Add in calls from advisors touting short-term ETF performance, and the temptation to chase returns becomes very real.

For those who’ve followed my work for a while, you know my investing journey spans more than forty years. I’ve felt this same pull many times. But what has kept me grounded is a clear, repeatable plan. As I wrote years ago in my original “About” page when I began sharing and coaching this process:

“Many investors believe the best strategy is to chase maximum total return and then sell shares to fund their lifestyle. I tried that approach. It’s harder than it looks.

While you can create your own “dividends” by selling shares, it forces constant buying and selling. Over time, those transactions lead to timing errors, emotional decisions, and costly mistakes.

ETFs didn’t solve it either. They hold too many underperformers, which makes it mathematically impossible to beat the index they track. Over diversification may smooth the ride a little, but it doesn’t protect against losses.

My research eventually led me to dividend growth investing. Instead of selling assets, you collect and grow your income. Dividend growth investors focus on quality, ignore short-term price swings, and let rising dividends do the heavy lifting.

When your income grows steadily, your capital usually follows. That’s the power of cash flow over guesswork.”

Fast forward to today, I’ve taken this timeless concept and layered in some ideas of my own. I like to call it our DGI Napkin Plan, a simple idea with the power to change the way you think about retirement.

Here it is: Focus on high-quality dividend growth companies, buy them at sensible valuations, aim for an average 3% starting yield with at least 7% annual dividend growth, and hold. Initial yield plus dividend growth becomes your estimated capital growth rate.

The math is simple, but compounding turns simple into powerful. Here’s how it looks, starting with $100,000 or $1,000,000 of investment savings.

Intro

Our Timely Ten lists remain the fastest way to spot potential value opportunities, which explains why they continue to be the most-read articles every month.

Timely Ten (CDN)

There was little movement at the top of the Canadian list this month. We already own four of the top five names, so patience, not aggression, is the order of the day.

The biggest change came from goeasy Ltd., which dropped on the release of a short report on September 16. We took the opportunity to add to our position in the model portfolio. (You can read our full thesis in the weekend article.)

Enbridge Inc. also moved higher on price weakness and now sits at the tenth spot.

In the lower half of the list, both Waste Connections and Metro Inc. trended upward. We added to our position sizes in both companies. Detailed write-ups will be published over the next two weeks.

Timely Ten (USA)

The standout mover this month was Air Products and Chemicals, climbing from number thirteen to number eight. The company is facing some near-term challenges, but with 44 consecutive years of dividend growth, we are not counting it out. More research is underway.

On the flip side, NextEra Energy jumped 16% in price and fell from number eight to number thirteen on the list. Our patience in building this position in 2023 appears to be paying off.

We are also watching Automatic Data Processing closely. It has climbed from number nineteen to number seventeen in just 30 days and is approaching an attractive valuation zone. As a Dividend King with 50 consecutive years of increases and a history of double-digit annualized returns, it is firmly on our radar to add to the portfolio.

Each month, the Timely Ten lists surface real, actionable ideas. Some require more research, while others are ready to act on today. This disciplined framework keeps us focused on quality and valuation, not market noise.

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 favourable price correction.

We have pre-screened our candidates using the criteria we initially laid out in building our watchlists. 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 our Canadian and American watchlists based on how far each stock’s price is below its fair value (Low Price), as determined by dividend yield theory. To find fair value, divide the current dividend (Dividend) by the stock’s historical high yield (High Yield).

Since price and yield move in opposite directions, a lower price results in a higher yield, and vice versa. The ten companies above the thick black line have a current price (Price) below fair value (Low Price). Put simply, these stocks have a current dividend yield higher than their historically high yield. According to dividend yield theory, these companies are sensibly priced and have the highest probability of a price increase in the short term. These are our Timely Ten.

Intro

YTD Performance: The List +11.9% | Model Portfolio (CDN) +20.0%

Each January, we assemble a curated watchlist of Canadian and American dividend growth companies that we monitor throughout the year. These lists help coach our process, guide new investments, and serve as the foundation for our model portfolios.

We rarely invest outside these lists, but how we weight our investments once they enter the portfolio is what creates the edge.

The List: A Quality Benchmark 

Think of The List as an equal-weighted exchange-traded fund (ETF) made up of Canada’s best dividend growth companies. The performance you see, like this year’s +11.9% gain, assumes equal investment in every stock on January 1.

That is impressive on its own, but our Wealth-Builder Model Portfolio (CDN) has delivered nearly double the return.

The Secret: Position Sizing with Purpose

Before any company from the watchlist earns a place in our model portfolio, it must pass two final hurdles:

1. Quality – look for only the best of the best when we invest. Stocks must possess as many of our quality indicators as possible.
2. Valuation – look to buy a quality company that is sensibly priced based on historical fundamentals and valuation metrics.

Once in the portfolio, we apply a position sizing framework. Core holdings, our highest-quality companies, receive larger allocations. Non-core holdings take smaller weights.

This disciplined approach tilts the odds in our favor and amplifies the performance of our best ideas.

As an example: Had we weighted each company equally, our return of our model portfolio this year would have almost mirrored The List at +12.1%. By sizing positions in line with our current portfolio position sizes, the Wealth-Builder Model Portfolio (CDN) would stand at +20.0% YTD.

Intro

I’ve lost count of how many times I’ve been called old-fashioned for the principles I live by. Whether in business, parenting, or investing, I’ve found it pays to take the best lessons from those who came before us and use them as a foundation for building a productive and successful life.

The pullback in goeasy Ltd. shares this week was a reminder of why a data-driven, historically tested process is so important and why sticking to it matters. Paid subscribers who received my DGI Alert on goeasy saw that I topped up my position after the stock dropped 15%. I don’t know for certain whether the accusations of accounting irregularities have merit, but I feel confident we won’t be talking about them one or two years from now.

Buying quality companies at sensible prices may sound simple, but it’s never easy when the stock price is falling. The discipline to lean in during moments of fear is one of the most valuable lessons I learned early on, and it remains a cornerstone of how dividend growth investing outperforms over time.

Take Toronto-Dominion Bank as an example. A couple of years ago, I wrote an article titled Toronto-Dominion Bank: Time To Supercharge Your Dividend Growth Investing (DGI) Returns when TD was trading near $77. Last Friday it closed above $110. On top of that, our dividend return (growth yield) has already reached 5.4% in just two years, and the compounding is only getting started. Good luck finding that kind of return in on a bond or GIC today.

The investment thesis behind our TD Bank purchase was straightforward: look past the noise surrounding the U.S. banking sector, including credit delinquency fears and uncertainty around the First Horizon acquisition, and focus on TD as a high-quality business trading at a sensible price. More negative headlines followed, but as always, the cream rose to the top.

The Core Lesson

Market narratives are often just noise. Your greatest challenge as an investor is to stay steady when others are unsettled. To keep doing what’s right for you even as the crowd moves the other way. To trust your plan most when you’re tempted to abandon it.

Intro

The quote above speaks to the S&P 500, but the lesson applies no matter where you invest: valuation matters. In our dividend growth investing process, we spend a lot of time emphasizing undervaluation and the importance of buying at a sensible price. For today’s article, though, I want to flip the script and look at the other side of the coin, what can happen when you buy stocks that are overvalued.

Dividend growth investing works because it combines two of the most powerful forces in wealth building: rising income and compounding. The best companies increase their payouts year after year, and over time the snowball effect creates serious results.

But there is a catch. Even the highest-quality dividend grower can deliver disappointing returns if you buy it at the wrong price. Paying too much for a great business is one of the most common mistakes investors make.

Why Quality Alone Is Not Enough

It is tempting to believe that a wide-moat business with a long dividend streak is always worth owning. The problem is that returns depend not only on business quality but also on the valuation you lock in when you buy. If the stock is trading far above its fair value, future returns get squeezed.

A strong dividend record cannot save you from a poor entry point.

The Three Levers of Returns

Three factors drive every dividend growth investment:

1. Dividend yield at purchase
2. Future dividend growth
3. Valuation multiple

If the starting yield is low because the stock is overpriced, the compounding engine is weakened from the start. Worse, when the valuation multiple eventually drifts back to its historical average, you can face years of stagnant or negative price performance.

Imagine a stock that usually yields 3 percent but now yields only 2 percent because the price has run ahead. For that stock to return to its normal yield, the price would need to fall by one-third. That is enough to wipe out several years of dividend growth. 

The Hidden Cost of Overpaying

Buying an overvalued dividend stock does more than hurt your immediate returns. It also carries a heavy opportunity cost. Capital tied up in a stretched valuation is capital that could have been compounding at higher yields elsewhere.

Dividend Yield Theory helps investors avoid this trap. By comparing the current yield to long-term averages, you can quickly spot when a dividend grower has become too expensive.

Investor Psychology at Work

Many investors still pull the trigger on expensive stocks because of behavioral traps:

• Fear of missing out after a big run
• Anchoring to recent performance
• Confirmation bias from hearing only bullish commentary

These biases can push you into thinking that valuation no longer matters. History shows otherwise.

Lessons From the Past

Even legendary Canadian dividend growers have gone through long stretches of poor returns when purchased at extreme valuations. Canadian National Railway (CNR-T) is a good example from the last few years.

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

Black line: Price

Yellow 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