“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 – November 22, 2024

Last updated by BM on November 26, 2024

Summary

 

This is a weekly installment of our MP Market Review series, which provides insights and updates on Canadian dividend growth companies we monitor on ‘The List’. To read all our newsletters and premium content be sure to check us out on magicpants.substack.com.

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

DGI Clipboard

 

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

– Ray Dalio

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

 

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

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

First a little column background:

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

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

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

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

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

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

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

Wrap Up

 

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

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

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

DGI Scorecard

 
The List (2024)

 

The Magic Pants 2024 list includes 28 Canadian dividend growth stocks. Here are the criteria to be considered a candidate on ‘The List’:

  1. Dividend growth streak: 10 years or more.
  2. Market cap: Minimum one billion dollars.
  3. Diversification: Limit of five companies per sector, preferably two per industry.
  4. Cyclicality: Exclude REITs and pure-play energy companies due to high cyclicality.

Based on these criteria, companies are added or removed from ‘The List’ annually on January 1. Prices and dividends are updated weekly.

‘The List’ is not a portfolio; it is a coaching tool that helps us think about ideas and risk manage our model portfolio. We own some but not all the companies on ‘The List’.

Our newsletter provides readers with a comprehensive insight into the implementation and advantages of our Canadian dividend growth investing strategy. This evidence-based, unbiased approach empowers DIY investors to outperform both actively managed dividend funds and passively managed indexes and dividend ETFs over longer-term horizons.

For those interested in something more, please upgrade to a paid subscriber; you get the enhanced weekly newsletter, access to premium content, full privileges on the new Substack website magicpants.substack.com and DGI alerts whenever we make stock transactions in our model portfolio.

Performance of ‘The List’

 

Last week, dividend growth of ‘The List’ stayed the course and has increased by +9.1% YTD (income). How much did your salary go up this year?

Last week, the average price return of ‘The List’ was up with a return of +13.6% YTD (capital).

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

Last week’s best performers on ‘The List’ were Franco Nevada (FNV-N), up +8.55%; Metro Inc. (MRU-T), up +3.76%; and Stella-Jones Inc. (SJ-T), up +3.71%.

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

SYMBOL COMPANY YLD PRICE YTD % DIV YTD % STREAK
ATD-T Alimentation Couche-Tard Inc. 0.9% $78.59 2.4% $0.70 17.4% 14
BCE-T Bell Canada 10.7% $37.42 -30.9% $3.99 3.1% 15
BIP-N Brookfield Infrastructure Partners 4.7% $34.74 13.2% $1.62 5.9% 16
CCL-B-T CCL Industries Inc. 1.5% $77.68 34.3% $1.16 9.4% 22
CNR-T Canadian National Railway 2.2% $155.44 -6.8% $3.38 7.0% 28
CTC-A-T Canadian Tire 4.7% $150.16 8.3% $7.00 1.4% 13
CU-T Canadian Utilities Limited 5.0% $36.10 12.4% $1.81 0.9% 52
DOL-T Dollarama Inc. 0.2% $145.51 53.1% $0.35 30.7% 13
EMA-T Emera 5.5% $51.92 2.2% $2.88 3.3% 17
ENB-T Enbridge Inc. 6.1% $60.47 24.9% $3.66 3.1% 28
ENGH-T Enghouse Systems Limited 3.4% $29.27 -13.8% $1.00 18.3% 17
FNV-N Franco Nevada 1.2% $123.69 12.3% $1.44 5.9% 16
FTS-T Fortis Inc. 3.8% $63.13 15.1% $2.39 4.4% 50
IFC-T Intact Financial 1.8% $271.68 33.6% $4.84 10.0% 19
L-T Loblaw Companies Limited 1.1% $178.29 38.7% $1.92 10.0% 12
MFC-T Manulife Financial 3.5% $45.37 57.1% $1.60 9.6% 10
MGA-N Magna 4.2% $45.08 -18.8% $1.90 3.3% 14
MRU-T Metro Inc. 1.5% $89.73 31.0% $1.34 10.7% 29
RY-T Royal Bank of Canada 3.3% $174.71 31.3% $5.72 7.1% 13
SJ-T Stella-Jones Inc. 1.6% $70.69 -7.7% $1.12 21.7% 19
STN-T Stantec Inc. 0.7% $120.06 14.7% $0.83 7.8% 12
T-T Telus 7.2% $21.26 -10.4% $1.53 7.1% 20
TD-T TD Bank 5.2% $78.51 -7.3% $4.08 6.3% 13
TFII-N TFI International 1.1% $148.73 13.4% $1.60 10.3% 13
TIH-T Toromont Industries 1.6% $116.74 3.5% $1.92 11.6% 34
TRI-N Thomson Reuters 1.3% $161.20 12.5% $2.16 12.5% 30
TRP-T TC Energy Corp. 5.5% $69.65 33.1% $3.84 3.2% 23
WCN-N Waste Connections 0.6% $189.87 28.2% $1.17 11.4% 14
Averages 3.2% 13.6% 9.1% 21

Note: Stocks ending in “-N” declare earnings and dividends in US dollars. To achieve currency consistency between dividends and share price for these stocks, we have shown dividends in US dollars and share price in US dollars (these stocks are listed on a US exchange). The dividends for their Canadian counterparts (-T) would be converted into CDN dollars and would fluctuate with the exchange rate.

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

It truly is the subscription that pays dividends!

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

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

MP Market Review – November 15, 2024

Last updated by BM on November 19, 2024

Summary

 

This is a weekly installment of our MP Market Review series, which provides insights and updates on Canadian dividend growth companies we monitor on ‘The List’. To read all our newsletters and premium content be sure to check us out on magicpants.substack.com.

  • This week, we reveal our ‘Timely Ten’ most undervalued dividend growth companies.
  • Last week, dividend growth of ‘The List’ was up and has increased by +9.1% YTD (income).
  • Last week, the price of ‘The List’ was down with a return of +12.2% YTD (capital).
  • Last week, there were no dividend announcements from companies on ‘The List’.
  • Last week, there were three earnings reports from companies on ‘The List’.
  • This week, one company on ‘The List’ is due to report earnings.

DGI Clipboard

 

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

-Morgan Housel, author of The Psychology of Money

Timely Ten: Expanding Our Investable Universe
Intro

 

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

Here’s a recap on how we select our ‘Timely Ten’:

Step three in our process involves monitoring our quality dividend growers regularly, which can become quite challenging depending on the number of companies we track. Fortunately, we rely on ‘The List’ instead of the vast array of stocks in the index, which streamlines our task. Nevertheless, we continually seek methods to enhance our efficiency. Through dividend yield theory, we’ve discovered an approach that has proven remarkably effective in aiding us with our efforts over the years.

Dividend yield theory is a simple and intuitive approach to valuing dividend growth stocks. It suggests that the dividend yield of quality dividend growth stocks tends to revert to the mean over time, assuming that the underlying business model remains stable. In practical terms, if a stock pays a dividend yield above its ten-year average annual yield, its price will likely increase to return the yield to its historical average. Knowing that price and yield go in opposite directions, this theory helps us find stocks poised for a positive price correction.

We have pre-screened our candidates using the criteria we initially laid out in building ‘The List’. This helps us considerably narrow the universe of investable stocks.

  1. Dividend growth streak: 10 years or more.
  2. Market cap: Minimum one billion dollars.
  3. Diversification: Limit of five companies per sector, preferably two per industry.
  4. Cyclicality: Exclude REITs and pure-play energy companies due to high cyclicality.

Next, we rank ‘The List’ by how significantly each stock is priced below its fair value (Low Price), as calculated using dividend yield theory. To determine fair value, divide the current dividend by what you consider to be the stock’s historically high yield.

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

Wrap Up

 

When making investment decisions, always prioritize a company’s ‘quality’ over a ‘sensible price’. For more details on stock selection and our quality indicators, refer to our sample Business Plan.

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

DGI Scorecard

 
The List (2024)

 

The Magic Pants 2024 list includes 28 Canadian dividend growth stocks. Here are the criteria to be considered a candidate on ‘The List’:

  1. Dividend growth streak: 10 years or more.
  2. Market cap: Minimum one billion dollars.
  3. Diversification: Limit of five companies per sector, preferably two per industry.
  4. Cyclicality: Exclude REITs and pure-play energy companies due to high cyclicality.

Based on these criteria, companies are added or removed from ‘The List’ annually on January 1. Prices and dividends are updated weekly.

‘The List’ is not a portfolio; it is a coaching tool that helps us think about ideas and risk manage our model portfolio. We own some but not all the companies on ‘The List’.

Our newsletter provides readers with a comprehensive insight into the implementation and advantages of our Canadian dividend growth investing strategy. This evidence-based, unbiased approach empowers DIY investors to outperform both actively managed dividend funds and passively managed indexes and dividend ETFs over longer-term horizons.

For those interested in something more, please upgrade to a paid subscriber; you get the enhanced weekly newsletter, access to premium content, full privileges on the new Substack website magicpants.substack.com and DGI alerts whenever we make stock transactions in our model portfolio.

Performance of ‘The List’

 

Last week, dividend growth of ‘The List’ was up slightly and has increased by +9.1% YTD (income). How much did your salary go up this year?

Last week, the average price return of ‘The List’ was down with a return of +12.2% YTD (capital).

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

Last week’s best performers on ‘The List’ were Manulife Financial (MFC-T), up +4.09%; Stantec Inc. (STN-T), up +3.42%; and Alimentation Couche-Tard Inc. (ATD-T), up +3.04%.

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

SYMBOL COMPANY YLD PRICE YTD % DIV YTD % STREAK
ATD-T Alimentation Couche-Tard Inc. 0.9% $79.37 3.4% $0.70 17.4% 14
BCE-T Bell Canada 10.6% $37.81 -30.2% $3.99 3.1% 15
BIP-N Brookfield Infrastructure Partners 4.7% $34.20 11.4% $1.62 5.9% 16
CCL-B-T CCL Industries Inc. 1.5% $77.12 33.3% $1.16 9.4% 22
CNR-T Canadian National Railway 2.2% $153.35 -8.1% $3.38 7.0% 28
CTC-A-T Canadian Tire 4.6% $152.95 10.4% $7.00 1.4% 13
CU-T Canadian Utilities Limited 5.2% $34.98 8.9% $1.81 0.9% 52
DOL-T Dollarama Inc. 0.2% $148.07 55.8% $0.35 30.7% 13
EMA-T Emera 5.7% $50.76 -0.1% $2.88 3.3% 17
ENB-T Enbridge Inc. 6.2% $59.40 22.7% $3.66 3.1% 28
ENGH-T Enghouse Systems Limited 3.4% $29.60 -12.9% $1.00 18.3% 17
FNV-N Franco Nevada 1.3% $113.95 3.5% $1.44 5.9% 16
FTS-T Fortis Inc. 3.8% $62.21 13.4% $2.39 4.4% 50
IFC-T Intact Financial 1.8% $266.26 31.0% $4.84 10.0% 19
L-T Loblaw Companies Limited 1.1% $181.49 41.2% $1.92 10.0% 12
MFC-T Manulife Financial 3.5% $46.05 59.5% $1.60 9.6% 10
MGA-N Magna 4.3% $43.90 -20.9% $1.90 3.3% 14
MRU-T Metro Inc. 1.5% $86.48 26.2% $1.34 10.7% 29
RY-T Royal Bank of Canada 3.3% $171.13 28.6% $5.72 7.1% 13
SJ-T Stella-Jones Inc. 1.6% $68.16 -11.0% $1.12 21.7% 19
STN-T Stantec Inc. 0.7% $116.00 10.8% $0.83 7.8% 12
T-T Telus 7.2% $21.39 -9.8% $1.53 7.1% 20
TD-T TD Bank 5.2% $78.80 -7.0% $4.08 6.3% 13
TFII-N TFI International 1.1% $143.66 9.5% $1.60 10.3% 13
TIH-T Toromont Industries 1.6% $117.34 4.0% $1.92 11.6% 34
TRI-N Thomson Reuters 1.3% $161.71 12.8% $2.16 12.5% 30
TRP-T TC Energy Corp. 5.6% $69.05 32.0% $3.84 3.2% 23
WCN-N Waste Connections 0.6% $183.50 23.9% $1.17 11.4% 14
Averages 3.2% 12.2% 9.1% 21

Note: Stocks ending in “-N” declare earnings and dividends in US dollars. To achieve currency consistency between dividends and share price for these stocks, we have shown dividends in US dollars and share price in US dollars (these stocks are listed on a US exchange). The dividends for their Canadian counterparts (-T) would be converted into CDN dollars and would fluctuate with the exchange rate.

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

MP Market Review – November 8, 2024

Last updated by BM on November 12, 2024

Summary

 

This is a weekly installment of our MP Market Review series, which provides insights and updates on Canadian dividend growth companies we monitor on ‘The List’. To read all our newsletters and premium content be sure to check us out on magicpants.substack.com.

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

DGI Clipboard

 

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

– Paul Tudor Jones

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

 

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

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

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

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

Portfolio To Date (USA)

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

Wrap Up

 

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

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

DGI Scorecard

 
The List (2024)

 

The Magic Pants 2024 list includes 28 Canadian dividend growth stocks. Here are the criteria to be considered a candidate on ‘The List’:

  1. Dividend growth streak: 10 years or more.
  2. Market cap: Minimum one billion dollars.
  3. Diversification: Limit of five companies per sector, preferably two per industry.
  4. Cyclicality: Exclude REITs and pure-play energy companies due to high cyclicality.

Based on these criteria, companies are added or removed from ‘The List’ annually on January 1. Prices and dividends are updated weekly.

‘The List’ is not a portfolio; it is a coaching tool that helps us think about ideas and risk manage our model portfolio. We own some but not all the companies on ‘The List’.

Our newsletter provides readers with a comprehensive insight into the implementation and advantages of our Canadian dividend growth investing strategy. This evidence-based, unbiased approach empowers DIY investors to outperform both actively managed dividend funds and passively managed indexes and dividend ETFs over longer-term horizons.

For those interested in something more, please upgrade to a paid subscriber; you get the enhanced weekly newsletter, access to premium content, full privileges on the new Substack website magicpants.substack.com and DGI alerts whenever we make stock transactions in our model portfolio.

Performance of ‘The List’

 

Last week, dividend growth of ‘The List’ stayed the same and has increased by +9.0% YTD (income). How much did your salary go up this year?

Last week, the average price return of ‘The List’ was up with a return of +13.0% YTD (capital).

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

Last week’s best performers on ‘The List’ were TFI International (TFII-N), up +10.21%; Manulife Financial (MFC-T), up +7.56%; and Alimentation Couche-Tard Inc. (ATD-T), up +5.46%.

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

SYMBOL COMPANY YLD PRICE YTD % DIV YTD % STREAK
ATD-T Alimentation Couche-Tard Inc. 0.9% $77.03 0.4% $0.70 17.4% 14
BCE-T Bell Canada 10.1% $39.49 -27.1% $3.99 3.1% 15
BIP-N Brookfield Infrastructure Partners 4.7% $34.29 11.7% $1.62 5.9% 16
CCL-B-T CCL Industries Inc. 1.4% $81.19 40.4% $1.16 9.4% 22
CNR-T Canadian National Railway 2.2% $154.15 -7.6% $3.38 7.0% 28
CTC-A-T Canadian Tire 4.5% $154.00 11.1% $7.00 1.4% 13
CU-T Canadian Utilities Limited 5.2% $34.64 7.8% $1.81 0.9% 52
DOL-T Dollarama Inc. 0.2% $151.00 58.9% $0.35 29.5% 13
EMA-T Emera 5.7% $50.19 -1.2% $2.88 3.2% 17
ENB-T Enbridge Inc. 6.2% $58.93 21.8% $3.66 3.1% 28
ENGH-T Enghouse Systems Limited 3.3% $30.09 -11.4% $1.00 18.3% 17
FNV-N Franco Nevada 1.2% $122.44 11.2% $1.44 5.9% 16
FTS-T Fortis Inc. 3.9% $61.47 12.1% $2.39 4.4% 50
IFC-T Intact Financial 1.8% $266.23 30.9% $4.84 10.0% 19
L-T Loblaw Companies Limited 1.0% $185.51 44.3% $1.92 10.0% 12
MFC-T Manulife Financial 3.6% $44.24 53.2% $1.60 9.6% 10
MGA-N Magna 4.4% $43.40 -21.8% $1.90 3.3% 14
MRU-T Metro Inc. 1.6% $85.74 25.1% $1.34 10.7% 29
RY-T Royal Bank of Canada 3.3% $172.04 29.3% $5.72 7.1% 13
SJ-T Stella-Jones Inc. 1.5% $72.37 -5.5% $1.12 21.7% 19
STN-T Stantec Inc. 0.7% $112.16 7.2% $0.83 7.8% 12
T-T Telus 7.0% $21.81 -8.1% $1.53 7.1% 20
TD-T TD Bank 5.2% $78.91 -6.8% $4.08 6.3% 13
TFII-N TFI International 1.1% $145.55 10.9% $1.60 10.3% 13
TIH-T Toromont Industries 1.6% $118.65 5.2% $1.92 11.6% 34
TRI-N Thomson Reuters 1.3% $168.23 17.4% $2.16 12.5% 30
TRP-T TC Energy Corp. 5.7% $67.82 29.7% $3.84 3.2% 23
WCN-N Waste Connections 0.6% $184.04 24.2% $1.17 11.4% 14
Averages 3.2% 13.0% 9.0% 21

Note: Stocks ending in “-N” declare earnings and dividends in US dollars. To achieve currency consistency between dividends and share price for these stocks, we have shown dividends in US dollars and share price in US dollars (these stocks are listed on a US exchange). The dividends for their Canadian counterparts (-T) would be converted into CDN dollars and would fluctuate with the exchange rate.

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

MP Market Review – November 1, 2024

Last updated by BM on November 5, 2024

Summary

 

This is a weekly installment of our MP Market Review series, which provides insights and updates on Canadian dividend growth companies we monitor on ‘The List’. To read all our newsletters and premium content be sure to check us out on magicpants.substack.com.

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

DGI Clipboard

 

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

-Warren Buffett

When A Stock Fails To Raise Its Dividend
Intro

 

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

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

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

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

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

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

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

Are There More Attractive Ideas?

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

Here’s what to consider when evaluating an alternative:

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

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

Wrap Up

 

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

DGI Scorecard

 
The List (2024)

 

The Magic Pants 2024 list includes 28 Canadian dividend growth stocks. Here are the criteria to be considered a candidate on ‘The List’:

  1. Dividend growth streak: 10 years or more.
  2. Market cap: Minimum one billion dollars.
  3. Diversification: Limit of five companies per sector, preferably two per industry.
  4. Cyclicality: Exclude REITs and pure-play energy companies due to high cyclicality.

Based on these criteria, companies are added or removed from ‘The List’ annually on January 1. Prices and dividends are updated weekly.

‘The List’ is not a portfolio; it is a coaching tool that helps us think about ideas and risk manage our model portfolio. We own some but not all the companies on ‘The List’.

Our newsletter provides readers with a comprehensive insight into the implementation and advantages of our Canadian dividend growth investing strategy. This evidence-based, unbiased approach empowers DIY investors to outperform both actively managed dividend funds and passively managed indexes and dividend ETFs over longer-term horizons.

For those interested in something more, please upgrade to a paid subscriber; you get the enhanced weekly newsletter, access to premium content, full privileges on the new Substack website magicpants.substack.com and DGI alerts whenever we make stock transactions in our model portfolio.

Performance of ‘The List’

 

Last week, dividend growth of ‘The List’ stayed the same and has increased by +9.0% YTD (income). How much did your salary go up this year?

Last week, the average price return of ‘The List’ was down slightly with a return of +12.1% YTD (capital).

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

Last week’s best performers on ‘The List’ were Dollarama Inc. (DOL-T), up +3.41%; Loblaw Companies Limited (L-T), up +2.55%; and Alimentation Couche-Tard Inc. (ATD-T), up +2.25%.

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

SYMBOL COMPANY YLD PRICE YTD % DIV YTD % STREAK
ATD-T Alimentation Couche-Tard Inc. 1.0% $73.04 -4.8% $0.70 17.4% 14
BCE-T Bell Canada 8.9% $44.81 -17.3% $3.99 3.1% 15
BIP-N Brookfield Infrastructure Partners 4.7% $34.11 11.1% $1.62 5.9% 16
CCL-B-T CCL Industries Inc. 1.4% $81.85 41.5% $1.16 9.4% 22
CNR-T Canadian National Railway 2.2% $150.98 -9.5% $3.38 7.0% 28
CTC-A-T Canadian Tire 4.7% $150.11 8.3% $7.00 1.4% 13
CU-T Canadian Utilities Limited 5.1% $35.38 10.1% $1.81 0.9% 52
DOL-T Dollarama Inc. 0.2% $146.49 54.2% $0.35 29.5% 13
EMA-T Emera 5.6% $50.93 0.3% $2.88 3.2% 17
ENB-T Enbridge Inc. 6.5% $56.42 16.6% $3.66 3.1% 28
ENGH-T Enghouse Systems Limited 3.3% $30.45 -10.4% $1.00 18.3% 17
FNV-N Franco Nevada 1.1% $131.71 19.6% $1.44 5.9% 16
FTS-T Fortis Inc. 4.0% $59.74 8.9% $2.39 4.4% 50
IFC-T Intact Financial 1.8% $269.16 32.4% $4.84 10.0% 19
L-T Loblaw Companies Limited 1.1% $177.41 38.0% $1.92 10.0% 12
MFC-T Manulife Financial 3.9% $41.13 42.4% $1.60 9.6% 10
MGA-N Magna 4.5% $41.97 -24.4% $1.90 3.3% 14
MRU-T Metro Inc. 1.6% $82.91 21.0% $1.34 10.7% 29
RY-T Royal Bank of Canada 3.4% $170.12 27.9% $5.72 7.1% 13
SJ-T Stella-Jones Inc. 1.3% $86.99 13.6% $1.12 21.7% 19
STN-T Stantec Inc. 0.7% $113.77 8.7% $0.83 7.8% 12
T-T Telus 7.0% $21.90 -7.7% $1.53 7.1% 20
TD-T TD Bank 5.3% $76.76 -9.4% $4.08 6.3% 13
TFII-N TFI International 1.2% $132.07 0.7% $1.60 10.3% 13
TIH-T Toromont Industries 1.6% $123.66 9.6% $1.92 11.6% 34
TRI-N Thomson Reuters 1.3% $164.78 15.0% $2.16 12.5% 30
TRP-T TC Energy Corp. 5.9% $64.61 23.5% $3.84 3.2% 23
WCN-N Waste Connections 0.7% $176.96 19.4% $1.17 11.4% 14
Averages 3.2% 12.1% 9.0% 21

Note: Stocks ending in “-N” declare earnings and dividends in US dollars. To achieve currency consistency between dividends and share price for these stocks, we have shown dividends in US dollars and share price in US dollars (these stocks are listed on a US exchange). The dividends for their Canadian counterparts (-T) would be converted into CDN dollars and would fluctuate with the exchange rate.

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

MP Market Review – October 25, 2024

Last updated by BM on October 29, 2024

Summary

 

This is a weekly installment of our MP Market Review series, which provides insights and updates on Canadian dividend growth companies we monitor on ‘The List’. To read all our newsletters and premium content be sure to check us out on magicpants.substack.com.

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

DGI Clipboard

 

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

-Warren Buffett

Only Swing at the Right Opportunities!
Intro

 

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

Baseball and Investing

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

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

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

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

Wrap Up

 

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

DGI Scorecard

 
The List (2024)

 

The Magic Pants 2024 list includes 28 Canadian dividend growth stocks. Here are the criteria to be considered a candidate on ‘The List’:

  1. Dividend growth streak: 10 years or more.
  2. Market cap: Minimum one billion dollars.
  3. Diversification: Limit of five companies per sector, preferably two per industry.
  4. Cyclicality: Exclude REITs and pure-play energy companies due to high cyclicality.

Based on these criteria, companies are added or removed from ‘The List’ annually on January 1. Prices and dividends are updated weekly.

‘The List’ is not a portfolio; it is a coaching tool that helps us think about ideas and risk manage our model portfolio. We own some but not all the companies on ‘The List’.

Our newsletter provides readers with a comprehensive insight into the implementation and advantages of our Canadian dividend growth investing strategy. This evidence-based, unbiased approach empowers DIY investors to outperform both actively managed dividend funds and passively managed indexes and dividend ETFs over longer-term horizons.

For those interested in something more, please upgrade to a paid subscriber; you get the enhanced weekly newsletter, access to premium content, full privileges on the new Substack website magicpants.substack.com and DGI alerts whenever we make stock transactions in our model portfolio.

Performance of ‘The List’

 

Last week, dividend growth of ‘The List’ was up and has now increased by +9.0% YTD (income). How much did your salary go up this year?

Last week, the average price return of ‘The List’ was down with a return of +12.9% YTD (capital).

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

Last week’s best performers on ‘The List’ were Franco Nevada (FNV-N), up +2.64%; TD Bank (TD-T), up +0.59%; and CCL Industries Inc. (CCL-B-T), up -0.68%.

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

SYMBOL COMPANY YLD PRICE YTD % DIV YTD % STREAK
ATD-T Alimentation Couche-Tard Inc. 1.0% $71.43 -6.9% $0.70 17.4% 14
BCE-T Bell Canada 8.8% $45.57 -15.9% $3.99 3.1% 15
BIP-N Brookfield Infrastructure Partners 4.5% $35.70 16.3% $1.62 5.9% 16
CCL-B-T CCL Industries Inc. 1.4% $82.73 43.0% $1.16 9.4% 22
CNR-T Canadian National Railway 2.2% $154.25 -7.6% $3.38 7.0% 28
CTC-A-T Canadian Tire 4.5% $156.92 13.2% $7.00 1.4% 13
CU-T Canadian Utilities Limited 5.0% $35.96 12.0% $1.81 0.9% 52
DOL-T Dollarama Inc. 0.2% $141.66 49.1% $0.35 29.5% 13
EMA-T Emera 5.4% $53.13 4.6% $2.88 3.2% 17
ENB-T Enbridge Inc. 6.4% $56.93 17.6% $3.66 3.1% 28
ENGH-T Enghouse Systems Limited 3.2% $30.93 -8.9% $1.00 18.3% 17
FNV-N Franco Nevada 1.1% $135.62 23.1% $1.44 5.9% 16
FTS-T Fortis Inc. 3.9% $60.89 11.0% $2.39 4.4% 50
IFC-T Intact Financial 1.8% $267.38 31.5% $4.84 10.0% 19
L-T Loblaw Companies Limited 1.1% $173.00 34.6% $1.92 10.0% 12
MFC-T Manulife Financial 3.9% $41.41 43.4% $1.60 9.6% 10
MGA-N Magna 4.5% $41.98 -24.4% $1.90 3.3% 14
MRU-T Metro Inc. 1.6% $81.71 19.3% $1.34 10.7% 29
RY-T Royal Bank of Canada 3.4% $170.22 27.9% $5.72 7.1% 13
SJ-T Stella-Jones Inc. 1.3% $86.21 12.5% $1.12 21.7% 19
STN-T Stantec Inc. 0.7% $113.64 8.6% $0.83 7.8% 12
T-T Telus 7.0% $22.00 -7.3% $1.53 7.1% 20
TD-T TD Bank 5.2% $78.30 -7.5% $4.08 6.3% 13
TFII-N TFI International 1.2% $133.82 2.0% $1.60 10.3% 13
TIH-T Toromont Industries 1.5% $126.09 11.8% $1.92 11.6% 34
TRI-N Thomson Reuters 1.3% $164.78 15.0% $2.16 12.5% 30
TRP-T TC Energy Corp. 5.8% $65.68 25.6% $3.84 3.2% 23
WCN-N Waste Connections 0.7% $175.80 18.7% $1.17 11.4% 14
Averages 3.2% 12.9% 9.0% 21

Note: Stocks ending in “-N” declare earnings and dividends in US dollars. To achieve currency consistency between dividends and share price for these stocks, we have shown dividends in US dollars and share price in US dollars (these stocks are listed on a US exchange). The dividends for their Canadian counterparts (-T) would be converted into CDN dollars and would fluctuate with the exchange rate.

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

MP Market Review – October 18, 2024

Last updated by BM on October 22, 2024

Summary

 

This is a weekly installment of our MP Market Review series, which provides updates on the financial markets and Canadian dividend growth companies we monitor on ‘The List’.

  • This week, we discuss the ‘Timely Ten’ and the subtle moves up and down the list.
  • Last week, dividend growth of ‘The List’ stayed the course and has increased by +8.9% YTD (income).
  • Last week, the price of ‘The List’ was up with a return of +15.2% YTD (capital).
  • Last week, there were no dividend announcements from companies on ‘The List’.
  • Last week, there were no earnings reports from companies on ‘The List’.
  • This week, three companies on ‘The List’ are due to report earnings.

DGI Clipboard

 

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

– Tom Connolly

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

 

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

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

Here’s a recap on how we select our ‘Timely Ten’:

Step three in our process involves monitoring our quality dividend growers regularly, which can become quite challenging depending on the number of companies we track. Fortunately, we rely on ‘The List’ instead of the vast array of stocks in the index, which streamlines our task. Nevertheless, we continually seek methods to enhance our efficiency. Through dividend yield theory, we’ve discovered an approach that has proven remarkably effective in aiding us with our efforts over the years.

Dividend yield theory is a simple and intuitive approach to valuing dividend growth stocks. It suggests that the dividend yield of quality dividend growth stocks tends to revert to the mean over time, assuming that the underlying business model remains stable. In practical terms, if a stock pays a dividend yield above its ten-year average annual yield, its price will likely increase to return the yield to its historical average. Knowing that price and yield go in opposite directions, this theory helps us find stocks poised for a positive price correction.

We have pre-screened our candidates using the criteria we initially laid out in building ‘The List’. This helps us considerably narrow the universe of investable stocks.

  1. Dividend growth streak: 10 years or more.
  2. Market cap: Minimum one billion dollars.
  3. Diversification: Limit of five companies per sector, preferably two per industry.
  4. Cyclicality: Exclude REITs and pure-play energy companies due to high cyclicality.

Next, we rank ‘The List’ by how significantly each stock is priced below its fair value (Low Price), as calculated using dividend yield theory. To determine fair value, divide the current dividend by what you consider to be the stock’s historically high yield.

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

Wrap Up

 

When making investment decisions, always prioritize a company’s ‘quality’ over a ‘sensible price’. For more details on stock selection and our quality indicators, refer to our free sample Business Plan.

If you’re a new investor without any positions in the ‘Timely Ten’, now is the time to start your research and get to work.

DGI Scorecard

 
The List (2024)

 

The Magic Pants 2024 list includes 28 Canadian dividend growth stocks. Here are the criteria to be considered a candidate on ‘The List’:

  1. Dividend growth streak: 10 years or more.
  2. Market cap: Minimum one billion dollars.
  3. Diversification: Limit of five companies per sector, preferably two per industry.
  4. Cyclicality: Exclude REITs and pure-play energy companies due to high cyclicality.

Based on these criteria, companies are added or removed from ‘The List’ annually on January 1. Prices and dividends are updated weekly.

‘The List’ is not a portfolio; it is a coaching tool that helps us think about ideas and risk manage our model portfolio. We own some but not all the companies on ‘The List’.

Our newsletter provides readers with a comprehensive insight into the implementation and advantages of our Canadian dividend growth investing strategy. This evidence-based, unbiased approach empowers DIY investors to outperform both actively managed dividend funds and passively managed indexes and dividend ETFs over longer-term horizons.

For those interested in something more, please upgrade to a paid subscriber; you get the enhanced weekly newsletter, access to premium content, full privileges on the new Substack website magicpants.substack.com and DGI alerts whenever we make stock transactions in our model portfolio.

Performance of ‘The List’

 

Last week, dividend growth of ‘The List’ stayed the course and has now increased by +8.9% YTD (income). How much did your salary go up this year?

Last week, the average price return of ‘The List’ was up with a return of +15.2% YTD (capital).

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

Last week’s best performers on ‘The List’ were Franco Nevada (FNV-N), up +6.93%; Brookfield Infrastructure Partners (BIP-N), up +6.58%; and Emera (EMA-T), up +5.87%.

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

SYMBOL COMPANY YLD PRICE YTD % DIV YTD % STREAK
ATD-T Alimentation Couche-Tard Inc. 0.9% $73.73 -3.9% $0.70 17.4% 14
BCE-T Bell Canada 8.6% $46.31 -14.5% $3.99 3.1% 15
BIP-N Brookfield Infrastructure Partners 4.5% $36.28 18.2% $1.62 5.9% 16
CCL-B-T CCL Industries Inc. 1.4% $83.30 44.0% $1.16 9.4% 22
CNR-T Canadian National Railway 2.2% $156.84 -6.0% $3.38 7.0% 28
CTC-A-T Canadian Tire 4.4% $159.72 15.2% $7.00 1.4% 13
CU-T Canadian Utilities Limited 4.9% $36.94 15.0% $1.81 0.9% 52
DOL-T Dollarama Inc. 0.2% $144.74 52.3% $0.35 29.5% 13
EMA-T Emera 5.4% $53.60 5.5% $2.88 3.2% 17
ENB-T Enbridge Inc. 6.3% $57.97 19.8% $3.66 3.1% 28
ENGH-T Enghouse Systems Limited 3.2% $31.43 -7.5% $1.00 18.3% 17
FNV-N Franco Nevada 1.1% $132.13 20.0% $1.44 5.9% 16
FTS-T Fortis Inc. 3.8% $62.09 13.2% $2.39 4.4% 50
IFC-T Intact Financial 1.8% $270.87 33.2% $4.84 10.0% 19
L-T Loblaw Companies Limited 1.1% $177.23 37.9% $1.92 10.0% 12
MFC-T Manulife Financial 3.8% $42.10 45.8% $1.60 9.6% 10
MGA-N Magna 4.4% $43.49 -21.6% $1.90 3.3% 14
MRU-T Metro Inc. 1.6% $84.76 23.7% $1.34 10.7% 29
RY-T Royal Bank of Canada 3.3% $174.08 30.8% $5.72 7.1% 13
SJ-T Stella-Jones Inc. 1.3% $88.63 15.7% $1.12 21.7% 19
STN-T Stantec Inc. 0.7% $115.65 10.5% $0.83 7.8% 12
T-T Telus 6.8% $22.57 -4.8% $1.53 7.1% 20
TD-T TD Bank 5.2% $77.84 -8.1% $4.08 6.3% 13
TFII-N TFI International 1.2% $137.71 5.0% $1.60 10.3% 13
TIH-T Toromont Industries 1.4% $133.62 18.5% $1.92 11.6% 34
TRI-N Thomson Reuters 1.3% $168.60 17.6% $2.16 12.5% 30
TRP-T TC Energy Corp. 5.8% $66.42 27.0% $3.84 3.2% 23
WCN-N Waste Connections 0.6% $182.60 23.2% $1.14 8.6% 14
Averages 3.1% 15.2% 8.9% 21

Note: Stocks ending in “-N” declare earnings and dividends in US dollars. To achieve currency consistency between dividends and share price for these stocks, we have shown dividends in US dollars and share price in US dollars (these stocks are listed on a US exchange). The dividends for their Canadian counterparts (-T) would be converted into CDN dollars and would fluctuate with the exchange rate.

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

MP Market Review – October 11, 2024

Last updated by BM on October 16, 2024

Summary

 

This is a weekly installment of our MP Market Review series, which provides updates on the financial markets and Canadian dividend growth companies we monitor on ‘The List’.

  • This week, we discuss The Art of Pruning: Letting Winners Run While Trimming Excess Growth.
  • Last week, dividend growth of ‘The List’ ticked upwards and has increased by +8.9% YTD (income).
  • Last week, the price of ‘The List’ was also up with a return of +13.3% YTD (capital).
  • Last week, there were no dividend announcements from companies on ‘The List’.
  • Last week, there were no earnings reports from companies on ‘The List’.
  • This week, no companies on ‘The List’ are due to report earnings.

DGI Clipboard

 

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

– Peter Lynch

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

 

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

Selling Guidelines

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

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

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

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

Historical Fundamentals

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

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

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

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

Adjusted Operating Earnings 

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

Black line: Price

White line: Dividend

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

Blue line: Normal P/E

Dashed or dotted lines: Estimates only

Green area: Earnings

Green dots: Purchases

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

Dividend Yield Theory

The dividend yield theory is a simple and intuitive approach to valuing dividend growth stocks. It suggests that the dividend yield of quality dividend growth stocks tends to revert to the mean over time, assuming that the underlying business model remains stable.

In practical terms, if a stock pays a dividend yield above its ten-year average annual yield, its price will likely increase to return the yield to its historical average. The opposite is true should the current yield be below the historical average.

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

Wrap Up

 

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

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

DGI Scorecard

 
The List (2024)

 

The Magic Pants 2024 list includes 28 Canadian dividend growth stocks. Here are the criteria to be considered a candidate on ‘The List’:

  1. Dividend growth streak: 10 years or more.
  2. Market cap: Minimum one billion dollars.
  3. Diversification: Limit of five companies per sector, preferably two per industry.
  4. Cyclicality: Exclude REITs and pure-play energy companies due to high cyclicality.

Based on these criteria, companies are added or removed from ‘The List’ annually on January 1. Prices and dividends are updated weekly.

‘The List’ is not a portfolio; it is a coaching tool that helps us think about ideas and risk manage our model portfolio. We own some but not all the companies on ‘The List’.

Our newsletter provides readers with a comprehensive insight into the implementation and advantages of our Canadian dividend growth investing strategy. This evidence-based, unbiased approach empowers DIY investors to outperform both actively managed dividend funds and passively managed indexes and dividend ETFs over longer-term horizons.

For those interested in something more, please upgrade to a paid subscriber; you get the enhanced weekly newsletter, access to premium content, full privileges on the new Substack website magicpants.substack.com and DGI alerts whenever we make stock transactions in our model portfolio.

Performance of ‘The List’

 

Last week, dividend growth of ‘The List’ was up and has now increased by +8.9% YTD (income).

Last week, the price return of ‘The List’ was up with a return of +13.3% YTD (capital).

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

Last week’s best performers on ‘The List’ were Dollarama Inc. (DOL-T), up +4.38%; Stantec Inc. (STN-T), up +4.02%; and Canadian National Railway (CNR-T), up +3.51%.

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

SYMBOL COMPANY YLD PRICE YTD % DIV YTD % STREAK
ATD-T Alimentation Couche-Tard Inc. 1.0% $72.27 -5.8% $0.70 17.4% 14
BCE-T Bell Canada 8.8% $45.45 -16.1% $3.99 3.1% 15
BIP-N Brookfield Infrastructure Partners 4.8% $34.04 10.9% $1.62 5.9% 16
CCL-B-T CCL Industries Inc. 1.4% $81.34 40.6% $1.16 9.4% 22
CNR-T Canadian National Railway 2.1% $159.43 -4.5% $3.38 7.0% 28
CTC-A-T Canadian Tire 4.4% $158.95 14.7% $7.00 1.4% 13
CU-T Canadian Utilities Limited 5.1% $35.59 10.8% $1.81 0.9% 52
DOL-T Dollarama Inc. 0.2% $144.03 51.6% $0.35 29.5% 13
EMA-T Emera 5.7% $50.63 -0.3% $2.88 3.2% 17
ENB-T Enbridge Inc. 6.5% $56.56 16.9% $3.66 3.1% 28
ENGH-T Enghouse Systems Limited 3.2% $31.23 -8.1% $1.00 18.3% 17
FNV-N Franco Nevada 1.2% $123.57 12.2% $1.44 5.9% 16
FTS-T Fortis Inc. 4.0% $59.74 8.9% $2.39 4.4% 50
IFC-T Intact Financial 1.8% $264.00 29.8% $4.84 10.0% 19
L-T Loblaw Companies Limited 1.1% $177.41 38.0% $1.92 10.0% 12
MFC-T Manulife Financial 3.8% $41.82 44.8% $1.60 9.6% 10
MGA-N Magna 4.6% $41.40 -25.4% $1.90 3.3% 14
MRU-T Metro Inc. 1.6% $84.10 22.8% $1.34 10.7% 29
RY-T Royal Bank of Canada 3.4% $170.38 28.1% $5.72 7.1% 13
SJ-T Stella-Jones Inc. 1.2% $92.66 21.0% $1.12 21.7% 19
STN-T Stantec Inc. 0.7% $116.83 11.6% $0.83 7.8% 12
T-T Telus 6.9% $22.28 -6.1% $1.53 7.1% 20
TD-T TD Bank 5.2% $78.48 -7.3% $4.08 6.3% 13
TFII-N TFI International 1.1% $139.27 6.2% $1.60 10.3% 13
TIH-T Toromont Industries 1.4% $133.89 18.7% $1.92 11.6% 34
TRI-N Thomson Reuters 1.3% $167.26 16.7% $2.16 12.5% 30
TRP-T TC Energy Corp. 6.1% $62.81 20.1% $3.84 3.2% 23
WCN-N Waste Connections 0.6% $181.40 22.4% $1.14 8.6% 14
Averages 3.2% 13.3% 8.9% 21

Note: Stocks ending in “-N” declare earnings and dividends in US dollars. To achieve currency consistency between dividends and share price for these stocks, we have shown dividends in US dollars and share price in US dollars (these stocks are listed on a US exchange). The dividends for their Canadian counterparts (-T) would be converted into CDN dollars and would fluctuate with the exchange rate.

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

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….

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

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