Category: MP Market Reviews

Intro

John Bogle, founder of Vanguard and a pioneer of index investing, left behind a remarkably simple formula for understanding long-term stock market returns:

Total Return = Investment Return + Speculative Return

This equation helps investors separate what truly drives long-term wealth from what merely adds short-term noise.

Investment Return is the foundation. It consists of two measurable components:

• Earnings growth: the rate at which a company’s profits increase.
• Dividend yield: the income paid out to shareholders based on the current price.

This is the part of the equation that reflects actual business performance. If a company grows earnings at 6% per year and pays a 3% dividend, the investment return is 9%. It’s based on productivity, not prediction.

Speculative Return, on the other hand, comes from changes in valuation—specifically, how much investors are willing to pay for a dollar of earnings. If a stock’s price-to-earnings (P/E) ratio rises, the share price can climb even if the business itself hasn’t improved. But if the P/E contracts, it can drag returns down despite strong fundamentals.

Bogle warned investors not to rely on this speculative component. It’s fickle and often mean-reverting over time.

This framework maps perfectly onto dividend growth investing (DGI). As dividend growth investors, we focus almost entirely on the investment return side of the equation. We look for high-quality companies with consistent earnings and a track record of increasing dividends. We care less about what the market might pay tomorrow and more about what the business is producing today.

The best part? Dividend growth and earnings growth are often tightly linked. A company can’t raise its dividend for 10, 20, or 30 consecutive years unless its profits are also growing.

Even during periods when valuations compress and speculative return turns negative, our dividends continue. And by reinvesting those dividends, we acquire more shares at lower prices—compounding our future income even faster.

That’s what makes DGI so powerful: it’s not reliant on market timing, headlines, or sentiment. It’s grounded in fundamentals and powered by time.

Bogle’s formula reminds us that we don’t need to predict the market to succeed. We just need to focus on what we can control—buying great businesses at reasonable valuations and letting compounding do the heavy lifting.

Intro

Yield on Cost, or as we prefer to define it, Growth Yield, is one of the best ways to measure and estimate dividend growth investing success. We will show you how you can also use this metric to build a powerful DGI portfolio.

First, a couple of definitions:

• Dividend Yield is the current annualized dividend divided by the current price of the stock
• Growth Yield is the current annualized dividend divided by the original cost basis of the stock

In other words, Dividend Yield is your current yield, and Growth Yield is the yield you are now making, on dividends alone, from your original investment sometime in the past.

Using both a historical and estimated Growth Yield, we have found that you can reliably construct powerful DGI portfolios.

As mentioned before, dividend growth investing is a risk reduction strategy that leads us to the highest quality companies. The Growth Yield metric is one way to get there.

First, we need to decide on the minimum Growth Yield we would like to achieve after ten years of holding the stock. This is a personal decision based on your own objectives. We like a minimum average Growth Yield of 7% in our Magic Pants Wealth-Builder Portfolios.

The first thing we do is look at the company’s historical record and how it has performed over the last decade, keeping our minimum Growth Yield in mind. The historical Growth Yield calculation is an easy one. Start with the current annualized dividend and divide it by the stock price ten years ago. If the Growth Yield is greater than 7% you now have a candidate for further analysis.

Next, we estimate if this type of dividend growth is likely to continue. Estimating Growth Yield ten years out can be calculated by taking the current (or starting) dividend yield and multiply it by the average annual forward dividend growth rate to the power of the period in question (5 for the next five years, 10 for the next ten years). We will use ten years for our demonstration.

Forward dividend growth rates can be a little trickier. Some companies even publish their estimated dividend growth rates in their earnings reports.

If company estimates are not available, you can always look at the recent past (3-5 yrs) and estimate a forward growth rate.

Here is a recent example of a growth yield calculation we did before purchasing Manulife Financial for our Canadian model portfolio a little over a year ago.

The Historical Growth Yield is an actual value based on an investment made ten years ago.

Historical Growth Yield calculation for Manulife Financial (MFC-T)

Formula: Current Dividend (2024) / Price Jan. 1, 2014 = Historical Growth Yield

$1.60 / $20.73 = 7.7%

The Estimated Forward Growth Yield is a forecasted value over the next ten years based on today’s investment.

Estimated Growth Yield calculation for Manulife Financial (MFC-T)

Formula: Current Yield (Jan. 1, 2024) * 5YR average annual dividend growth rate ^ Period (10 years)

4.86% * 10.0% ^ 10 = 12.6%

In this case, Manulife Financial easily meets both our minimum Growth Yields (historical and estimated).

To put this metric in context, if you invested $10,000 in Manulife Financial (MFC-T) in March 2024, based on our estimates, you can anticipate earning approximately $1,260 annually from dividend payments alone after ten years. This projected return significantly surpasses our 7% threshold, highlighting the attractive income potential for investors over the long term.

Purchasing companies at a ‘sensible price’ is still essential in our process, and you should not blindly add positions based on Growth Yield alone. Valuation at the time of purchase will improve your future performance.

Intro

In investing, success is often portrayed as the ability to consistently predict market moves, uncover the next Nvidia early, and exit just before a crash. But this image is not only unrealistic—it’s a harmful illusion that can derail good decision-making.

In 2021, BlackRock portfolio manager Ronald van Loon published research in the Journal of Portfolio Management that posed a simple question: How often do professional investors actually need to be right to beat the market?

His answer: not very often. In U.S. equities, a success rate just over 53% was enough to outperform. In fixed income, it was closer to 51%.

That aligns perfectly with a quote we’ve shared before from tennis legend Roger Federer:

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

That’s the key: You can win the match without winning every point.

Just like Federer, investors don’t need to be right all the time—they need to be right about the things that matter. With a sound process and a long-term focus, being “wrong” nearly half the time still leads to success.

Many investors fall into the trap of thinking every trade has to be spot on. But sustainable long-term success doesn’t come from flawless execution. It comes from consistency, patience, and the discipline to follow a sound investment process.

Our approach is grounded in owning high-quality dividend growth companies with the ability to compound cash flows for decades. We don’t try to win every trade—we focus on building portfolios with reliable, growing income and long-term capital appreciation.

As of last Friday:

• Our Canadian model portfolio has a “point-win rate” of 66% (based on our timestamped trades).
• Our U.S. model portfolio is even stronger at 74%.

A quick look at our Performance tab shows how this translates into consistent income growth and capital returns over time.

Intro

Below are the ten most undervalued dividend growth companies (according to dividend yield theory) from our Canadian and American watchlists, based on last Friday’s closing prices.

One month typically isn’t sufficient for stocks in the Timely Ten to move entirely off the list unless they’re already positioned near the bottom. It’s more effective to monitor shifts in rankings to identify promising candidates that may be on the move.

Last month, we anticipated Toronto Dominion Bank’s (TD-T) upward momentum. As expected, TD has now exited the Timely Ten (CDN) list and continues to deliver strong performance. With our full position in this high-quality Canadian bank firmly established within the Wealth-Builder Model Portfolio-CDN, we’ll continue to benefit from its solid dividend growth and ongoing capital appreciation until it reaches overvalued territory.

Enbridge Inc. (ENB-T) has taken TD’s place in the tenth spot. Other positions from last month remain relatively stable, although Enghouse Systems Limited (ENGH-T) continues to hold the top undervalued position for several months in a row, signaling ongoing concerns.

The Timely Ten (USA) presents more noticeable changes. Starbucks (SBUX-Q) declined four spots to eighth due to a recent stock rally. Conversely, Essential Utilities (WTRG-N) advanced two positions on price weakness, while Domino’s Pizza Inc. (DPZ-Q) made the most significant jump, climbing from fifteenth to tenth place.

Significant jumps, such as last month’s UnitedHealth Group and Domino’s Pizza Inc., this month are worth a closer look. We always start our research with two valuation charts and then decide if a deeper dive is warranted.

Intro

The Silent Threat to Retirees: Understanding Sequence Risk Through a Dividend Growth Lens

Market volatility is a known challenge for investors, but for retirees, it carries a more dangerous form: sequence risk.

What Is Sequence Risk?

Sequence risk refers to the danger of poor investment returns early in retirement, just as you begin withdrawing income. When withdrawals coincide with market losses, your portfolio can suffer lasting damage, reducing its ability to recover and increasing the risk of outliving your savings.

Consider two retirees with identical portfolios and returns. If Retiree A sees losses early on and Retiree B experiences them later, A could run out of money much sooner—even with the same average return.

This isn’t just theory. Retirees in 2000 or 2008 saw how withdrawing during downturns locks in losses and shrinks the capital base needed for future growth.

Why Traditional Strategies Fall Short

Most retirement strategies rely on a 4% systematic withdrawal rule, selling stocks and bonds to generate income. But markets don’t deliver smooth returns. During downturns, retirees must sell more shares to meet income needs—especially damaging if losses persist.

Diversification can help, but in global sell-offs like 2008 or 2020, most assets fall together. Inflation adds further pressure, as rising withdrawals are needed to preserve purchasing power.

How Dividend Growth Investing Helps

Dividend Growth Investing (DGI) focuses on owning quality companies that consistently increase their dividends. This approach offers natural protection against sequence risk:

1. Income Without Selling

DGI lets you live off dividends, reducing or eliminating the need to sell shares during downturns. Your income comes from business results, not market swings. Whether it’s 2025 or 2030, if dividends cover your expenses, volatility matters less.

2. Steady Dividends in Tough Times

While stock prices fluctuate, dividends from high-quality companies are far more stable. Many Dividend Aristocrats raised payouts through the dot-com crash, 2008, and the pandemic. That consistency provides confidence and helps weather storms.

3. Growing Income Beats Inflation

Dividend growth helps not just to maintain but increase purchasing power. If your dividends rise from $40,000 to $44,500 over a few years, you’re staying ahead of inflation—without touching your principal. That’s a sharp contrast to drawdown strategies, which risk faster depletion during poor market periods.

4. A Psychological Advantage

Watching portfolio value drop while selling assets creates anxiety. But seeing dividends roll in provides peace of mind. Holding quality companies that reward shareholders allows you to tune out the noise and stay focused on income—not price.

This mindset shift helps investors avoid emotional mistakes that can derail retirement plans.

Important Considerations

No strategy is flawless. DGI requires selectivity. Not all dividend payers are reliable—some cut dividends in tough times. That’s why quality matters. Focus on companies with:

• Consistent free cash flow
• Conservative payout ratios
• Long dividend growth histories
• Strong competitive advantages

Also, a successful DGI portfolio takes time. Start early, reinvest dividends, and let compounding do its work.

Intro

Owning the Business, Not Just the Stock

Last week, I sent out the latest performance summaries for our model portfolios. After three years of tracking our journey on the blog, timestamping every trade and documenting each move, it’s rewarding to see the results taking shape. Our capital and income are growing in tandem, and we’re well on our way to outperforming the indexes we track.

At the heart of our strategy is one powerful idea:

We’re not buying stocks. We’re buying businesses.

This ownership mindset shapes everything we do. We treat each investment as though we’re acquiring a meaningful stake in a real company—not just trading a ticker symbol. This mindset keeps us calm during volatility and focused on long-term value, not short-term noise.

It also forces us to go deeper—to truly understand the businesses we own, the quality of their management, and the durability of their cash flows. We focus on North America’s top companies, led by exceptional people and supported by teams of skilled employees. Their success is our success. When they grow, so does our financial freedom.

We don’t see our portfolio as a random collection of stocks. We see it as our personal asset management firm, where our assets are high-quality, dividend-growing businesses. These assets reward us with both rising income and capital appreciation. And because they’re built for the long term, we manage them with a “never sell” mindset.

Over time, we shift from working for our money to having our money work for us. That’s the transition we aim to make, from earners to owners.

Buffett’s Been Doing It for Decades

I recently read an article about the CEO of Coca-Cola, who earned roughly $24 million last year, including bonuses and stock awards.

Meanwhile, Warren Buffett’s Berkshire Hathaway owns 400 million shares of Coca-Cola, which will pay a $2.04 dividend per share this year. That’s more than $800 million in dividends—just for owning the stock.

Buffett didn’t need to run the company. He simply owned a great business and got paid over 30 times more than the CEO.

Next year, he’ll earn even more. Why? Because Coca-Cola has raised its dividend for 62 straight years.

Intro

Later this week, I’ll be sharing our quarterly review summary for both the Canadian and American model portfolios.

One of the key themes we’ve emphasized this year is how our dividend growth companies tend to outperform the broader indexes during times of uncertainty and volatility. That’s no accident—it’s the result of a disciplined process that starts with quality.

When markets get rocky, investors often rush back to the kinds of companies we’ve been holding all along. Another cornerstone of our strategy is patience. By staying the course and focusing on fundamentals, we’ve been able to grow both our income and capital—even in turbulent times.

TD Bank reported strong Q1 earnings this past week, and I wanted to highlight it as a great example of the value of patience and conviction in quality businesses. We added to our position in TD over the past couple of years—through the money laundering investigation, the failed First Horizon bid, and the recent trade war. Despite the noise, the fundamentals remained intact, and year-to-date the stock is up ~ 21%. The recent earnings beat was followed by several analyst upgrades, reinforcing our long-term thesis.

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

Black line: Price

Yellow line: Dividend Payout Ratio

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

Intro

All ten names from last month’s Timely Ten (CDN) list remain undervalued, but there’s been notable movement within the ranks. CTC.A has slipped down the list, while ATD and GSY have moved up. Whether CTC.A can maintain its momentum is something to watch. ATD continues to be weighed down by uncertainty around its pursuit of Seven & i (owner of 7-Eleven), and GSY recently posted an earnings miss. Meanwhile, the market is beginning to recognize the value in CCL.B and TD — both may graduate off the list soon.

The headline change in our Timely Ten (USA) list is UnitedHealth, which jumped from 19th to 1st. The stock tanked after the U.S. Department of Justice launched a Medicare fraud investigation, alleging that UNH overstated patient diagnoses to bill Medicare more. Shortly after, the company withdrew guidance and unexpectedly announced a new CEO on May 13.

With several notable shifts this month, both lists present compelling starting points for further research. Each stock has already passed our rigorous screening process, so much of the heavy lifting has been done. If you’d like to follow along more closely or invest alongside us in our model portfolios, consider subscribing to our paid service.

Timely Ten

Below are the ten most undervalued dividend growth companies (according to dividend yield theory) from our Canadian and American watchlists, based on last Friday’s closing prices.

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 shorter term. These are our ‘Timely Ten.’

Intro

In a blog post last November titled When a Stock Fails to Raise Its Dividend, we discussed the steps investors should consider when a company pauses or reduces its dividend, highlighting Bell Canada’s decision at the time to freeze its dividend. Last week, the situation escalated, as Bell Canada announced a substantial 56% dividend cut.

Here’s the statement from BCE’s Q1 2025 earnings report:

“There are a number of significant changes in our economic and operating environments that have occurred since the Fall of 2024 that we need to address. We have made the appropriate decision to adjust our annualized dividend to $1.75 per common share to strengthen our balance sheet while maintaining flexibility in the context of economic uncertainty.

Today we also announced a major strategic partnership with Public Sector Pension Investment Board (PSP Investments), one of Canada’s largest pension investors, to accelerate the development of fibre infrastructure through Ziply Fiber in underserved markets in the United States. PSP Investments will potentially commit in excess of US$ 1.5 billion, enabling us to support our U.S. fibre growth strategy in a cost-efficient manner, while optimizing our balance sheet and improving our free cash flow profile.

As we look ahead to the rest of 2025, we will be focused on disciplined execution and continuing to strengthen the balance sheet. We will remain resilient in a challenging environment to deliver for our customers and shareholders.”

The announcement has sparked an important question in our model portfolio: What should we do with our existing position in BCE-T—sell, hold, or buy more?

In my early years of dividend growth investing, I faced similar situations. Each time, I chose to hold the shares. They eventually recovered—but in one case it took five years, and in the other, two. In both cases I could have made more by selling and investing in a quality company that was growing its dividend.

As noted in the blog post above, we ask ourselves two key questions whenever a company freezes or cuts its dividend:

1. Has the company’s long-term earnings power been impaired?
2. Are there more attractive opportunities elsewhere?

Last fall, we gave Bell Canada the benefit of the doubt and held our shares, hoping for a potential turnaround. However, after reviewing the latest earnings report—marked by confusing signals and a noticeably cautious tone from management—we now have a clear answer to both of our guiding questions: it’s a resounding yes.

Intro

I’m currently preparing the quarterly review of our model portfolios as of April 30, 2025, with the full report set to be released to paid subscribers in the coming weeks. Our fiscal year runs from May 1 to April 30. Just completing its third year, the Canadian model portfolio is beginning to show the compounding effects of wealth building. While the U.S. portfolio is only two years old, it benefited from a well-timed launch during a market upswing, resulting in stronger capital appreciation. More details on overall performance will be shared soon.

One of the most meaningful highlights in each review is the list of companies that raised their dividends during the quarter—a testament to the steady and dependable income growth that anchors our investment strategy. Here’s a sneak peek at the latest dividend growth activity in our Canadian portfolio:

Thirteen companies in the portfolio announced dividend increases this quarter:

Thomson Reuters (TRI-N) .54 to .595 up 10.2% payable March 10, 2025

Magna (MGA-N) .475 to .485 up 2.1% payable March 14, 2025

Manulife Financial (MFC-T) .40 to .44 up 10% payable March 19, 2025

Intact Financial (IFC-T) 1.21 to 1.33 up 9.9% payable March 31, 2025

CCL Industries Inc. (CCL-B-T) .29 to .32 up 10.3% payable March 31, 2025

Toromont Industries (TIH-T) .48 to .52 up 8.3% payable April 4, 2025

goeasy Ltd. (GSY-T) 1.17 to 1.46 up 24.8% payable April 11, 2025

Stantec Inc. (STN-T) .21 to .225 up 7.1% payable April 15, 2025

Stella-Jones Inc. (SJ-T) .28 to .31 up 10.7% payable April 18, 2025

TC Energy (TRP-T) .8225 to .85 up 3.3% payable April 30, 2025

Dollarama Inc. (DOL-T) .092 to .1058 up 15.0% payable May 9, 2025

Enghouse Systems (ENGH-T) .26 to .30 up 15.4% payable May 30, 2025

Loblaw Companies Limited (L-T) .513 to .5643 up 10.0% payable July 1, 2025

Dividend growth itself is a magical thing—it puts more money directly into your pocket, letting you spend more on the things you love. But the true magic happens when dividend growth drives the stock price higher. As dividends rise consistently, stock prices tend to follow suit over time.