Category: Uncategorized

Q2 2021 Earnings Calendar-Intro

Posted by JM on June 28, 2021

Benjamin Graham once remarked that earnings are the principal factor driving stock prices.

Each quarter we will provide readers with weekly earnings updates of stocks on ‘The List’ during the calendar earnings season. Q2 has just ended, and companies are now beginning to report. The chart can be found below the updated List by selecting ‘The List’ menu item.

Earnings growth and dividend growth tend to go hand in hand so this information can tell us a lot about future dividend growth of our quality companies. Monitoring our dividend growers periodically is part of the process and reading the quarterly earnings releases is a good place to start.

Some of our dividend growers from ‘The List’ have reported quarterly earnings already, based on their fiscal year, with the majority of Q2 earnings scheduled to report in July. Here’s a list (sorted by date) of reporting dates, the market’s consensus estimates and actual reported results.

SYMBOL	COMPANY	DATE	ESTIMATE	RESULT
RY-T	Royal Bank of Canada	27-May	$2.49	$2.79
TD-T	TD Bank	27-May	$1.76	$2.04
ENGH-T	Enghouse Systems Limited	10-Jun	$0.45	$0.37
ATD-B-T	Alimentation Couche-Tard Inc.	29-Jun	$0.42

Yield shortage spawning a movement in DGI

Posted by BM on April 11, 2021

Apart from the above average returns and growing income that have attracted dividend growth investors for years, we now have another catalyst to pique your interest, yield shortage.

In this recent article from Barron’s, the author points out that the yield of a 50-50 portfolio of stocks and bonds, once a reliable source of income for retirees, has dwindled to below 2%.

https://www.barrons.com/articles/yes-you-can-retire-on-dividends-10-stocks-to-build-an-income-stream-for-the-long-haul-51616752801

“Such paltry yields can make dividend stocks an attractive investment centerpiece for retirees. They can offer nice yields, and unlike fixed bond coupons, dividends can grow to hedge inflation, which many experts expect to tick up.

The strategy has spawned something of a movement, encompassing investors of all ages and levels of sophistication. There are Facebook groups devoted to the topic along with blogs, newsletters, books, and various other platforms.

But these investors are not your GameStop traders or momentum players. They are in many cases diligent investors adopting sound strategies to build a portfolio for the long haul, investing sometimes $100 here or $50 there. They’re more like modern-day moms and pops.”

The article also quotes Bob Baker, a retired aerospace engineer, who zeroed in on dividend growth investing in 2015 shortly after his retirement.

“Once I fully understood the significance of dividends from quality companies, a priority focus for me was not to have to sell any shares of any holdings.”

Barron’s then reached out to several other dividend growth investors and found that Bob Baker was not alone. Many believed that it was possible to manage a dividend growth portfolio for long term returns while at the same time minimizing risk.

Another article this week in the Globe & Mail, John Heinzl, who has been publishing the results of his model dividend portfolio since 2017 (20 companies with a history of raising their dividends), seems to agree.

https://www.theglobeandmail.com/investing/education/article-the-beauty-of-compound-growth-this-is-why-you-should-be-reinvesting/

“Reinvesting dividends is one of the keys to building wealth. Whether you enroll your stocks in a dividend reinvestment plan or reinvest your dividends manually when a sufficient amount of cash builds up, you’ll be putting the power of compounding in your corner.

The beauty of compound growth is that it accelerates over time, like the proverbial snowball that gets bigger as it rolls downhill. When compounding is combined with dividend growth and capital appreciation, it can achieve some extraordinary results over the long run.”

Whether you are young or old, need help with investing or are an experienced investor, it is hard to ignore the many benefits of a dividend growth strategy especially when the alternatives are not that appealing these days.

Rising interest rates are not a dividend growth stock killer

Posted by BM on April 1, 2021

In this March 26, Globe and Mail article the author addresses the theory that as interest rates rise dividend stocks drop. https://www.theglobeandmail.com/investing/education/article-dont-let-rising-rates-derail-your-dividend-plan/

“But Brian Belski, chief investment strategist with BMO Capital Markets, has come to a different conclusion after examining 30 years’ worth of data: Even as some dividend stocks struggle when rates are rising, companies that regularly raise their dividends have historically outperformed the market during such periods.”

Our good dividend growers seem to be immune from such myths.

“Rising rates are not a dividend-growth-stock killer, Mr. Belski concluded. Companies that are able to continue paying or even increase their dividends during challenging times are the epitome of high quality and stability, in our view.”

The article goes on to quote other studies that back this up showing that declines in dividend growth stocks triggered by rising interest rates are often only temporary.

The author uses Fortis Inc. (FTS) as a recent example of this behavior in the first week of March when rates were rising. The stock has rebounded nicely off its lows since.

It pays to have a ‘List’ of good dividend growers handy so that when buying opportunities arise you are confident in ‘pulling the trigger’.

Double-Double Club

Posted by BM on March 14, 2021

The “double-double” is a uniquely Canadian term that most of us attribute to Tim Hortons. It will get you a coffee with two creams and two sugars (or double cream, double sugar). If it were up to us, we would also add the term “double-double” to the growing list of all the things we have found magical about dividend growth investing (DGI).

When we started the Magic Pants Wealth-Builder (CDN) dividend growth portfolio eight years ago, we knew we would be provided with stable growing income in the years ahead, but it was difficult to imagine the total returns we would end up receiving on some of our initial DGI picks. We had no idea at the time what the price today would be for the DGI stocks we purchased then. Our research at the time told us that if past performance was any indication, we could expect our portfolio income to double in ten years and that was fine with us.

What we had not discovered back in 2012 and something that makes dividend growth investing truly magical, was that the price of a stock also tends to rise as the dividend grows. Price and income for both Franco Nevada (FNV) and Magna (MG) have already doubled with Magna’s price doubling for a second time.

Think how comforting it is to know that as an investor you only need to track one metric to measure your short-term performance; How much did my income rise last year! Price growth and total return will come, you just have to be patient.

The chart below shows the dividend and price growth of the stocks we purchased in 2012 and 2013 when we was just starting out with dividend growth investing. The highlighted ones (FNV, MG) have recently joined our ‘double-double’ club.

Having your stocks join the ‘double-double’ club in less than ten years is certainly exciting but how do you know which stocks are more probable to achieve this status than others?

Selecting quality companies with at least 10+ years of consecutive dividend growth is always a good place to start. Next, we look for historical dividend growth rates in the 6-8% range, or if the yield is lower, a bit higher. From there we let the magic of compounding take effect. If we can find stocks with a history of increasing their dividends more than 7.2% annually (Rule of 72) then we are well on our way to doubling our income over the next ten years. Not all our stocks will double both their income and price over the ensuing ten years, but a well-constructed portfolio selected primarily on dividend growth is more likely than not to achieve this goal.

2020 in Review

Posted by BM on March 7, 2021

The year 2020 was certainly one for the history books. On the investing side of things there was lots to remember and learn from as well. The stock market crash of 2020 began on Monday, March 9, with history’s largest point plunge on the US stock market up to that date. It was followed by two more record-setting point drops on March 12 and March 16. The stock market crash included the three worst point drops in U.S. history. If you had retirement savings or other funds invested in the stock market, the crash lowered the value of your holdings. When something like this happens, many people panic and sell their stocks to avoid losing more. But the risk with that strategy is that it is difficult to know when to re-enter the market and buy again. I was incredibly happy to have a solid investing strategy in place that continued to pay dividend income throughout the market turbulence and gave me the confidence to make the right investing decisions. By the end of the year the USA S&P 500 was up 18.4% and the CDN TSX was up 5.6% which on average, allowed patient investors to ride out 2020 virtually unscathed with a good return on their invested capital.

I am a firm believer in having a rules-based process for everything you do in life, but March 2020 was the first time my dividend growth process was truly tested. On top of that, I joined the category of ‘retiree’ about midway through the year which meant that all my investment decisions going forward would directly affect the capital I had set aside for retirement. I felt a heightened sense of pressure to make the right choices. Thankfully, I had a process I have been fine tuning for the last eight years.

Dividend growth investing is simple to understand with only three basic rules:

Quality; only buy companies that have a long dividend growth streak and good financial safety metrics in an industry that is stable and growing.
Valuation; look to buy a company that is fairly or undervalued.
Monitor; keep an eye on your dividend growers; especially the current yield; fluctuations in yields send signals. The consistency of a firm’s dividend growth is the best measure of management’s confidence in the long-term growth outlook for a company.

I already knew which companies were ‘Quality’ businesses with good financial metrics and stability. I have been researching dividend growth companies for years and my ‘List’ is always ready to go. Rather than initiating new positions at the low point in the market I chose to stay with companies I already held and knew well.

Valuation was next. I looked at how the companies on my list had historically been valued using three valuation metrics. Historical dividend yields (Dividend Yield Theory), Graham Value and Cyclically Adjusted Price to Earnings ratios (CAPE) made famous by Robert Shiller.

As the market spiralled downward in March, I topped up positions in a couple of Canadian Banks (RY, TD), a Consumer Goods stock, Magna (MG) and an out of favour Energy company (SU). In my USD portfolio I bought an Industrial stock (UPS). I really did not pay much attention to the industry or sector these stocks were in, I simply followed my process.

The most difficult thing to do was to buy more when my original purchase dropped 10% or more shortly thereafter. As you will see from the chart below, buying quality companies that are undervalued is a terrific way to super charge your long-term investment returns.

Here are the results as of March 12, 2021 on those March 2020 COVID purchases:

A one-year price/capital return, on average, of 54%!

Buying opportunities like March 2020 do not happen every year but you should be prepared and confident to pull the trigger when they do. Having a good process does that for you.

My process also tells me not to SELL my good dividend growers unless:

The company’s long-term earnings power appears to have become impaired.
The stocks valuation reaches seemingly excessive levels.
Or, I find a more attractive idea.

I did SELL some of my dividend growers in 2020 for one or more of the reasons listed above but not because I panicked when their price came under pressure due to the pandemic. As a new investor to DGI I have made a few mistakes and most of my SELLs are due to mistakes I made early on.

Finally, I will continue to monitor all positions as part of my process. Case in point is the 2020 dividend reduction of my Suncor (SU) position. I like its recent Q4 earnings and price growth but am still debating if I want a cyclical stock like Suncor in my retirement portfolio. With the recent uptick in oil prices, my guess is that the dividend will be raised back up to pre-pandemic levels in 2021/22 and my decision will be even more difficult. A nice decision to have.