Last updated by BM on April 24, 2023
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’.
- Last week, ‘The List’ was up again with a YTD price return of +8.3% (capital). Dividend growth remained the same and is now at +8.1% YTD, highlighting growth in income over the past year.
- Last week, no dividend increases from companies on ‘The List’.
- Last week, one earnings report from companies on ‘The List’.
- Six companies on ‘The List’ are due to report earnings this week.
- If you’re interested in creating your own dividend growth income portfolio, consider subscribing to our premium service, which grants you access to the MP Wealth-Builder Model Portfolio (CDN) and exclusive subscriber-only content. Learn More
Introduction
“You have a pair of pants. In the left pocket, you have $100. You take $1 out of the left pocket and put it 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.”
This ‘magic pants’ analogy was from a Seeking Alpha article on dividend investing I read about a decade ago and was one of the catalysts for me to take a closer look at this type of investing and see if it truly was magical.
After conducting additional research, I have shifted towards utilizing a dividend growth investing (DGI) strategy as my primary investment approach. While I maintain portfolios consisting of high-quality dividend growers from both the United States and Canada, I have opted to concentrate on Canadian (CDN) dividend growth companies in this blog. This is due to several reasons, including a smaller pool of DGI companies to track, a lack of coverage for the DGI strategy by the North American investment media, and a tendency for those who do cover DGI to narrowly focus on only a handful of sectors (Energy and Financials).
While ‘The List’ is not a portfolio in itself, it serves as an excellent initial reference for individuals seeking to diversify their investments and attain higher returns in the Canadian stock market. Through our blog, we provide weekly updates on ‘The List’ and offer valuable perspectives and real-life examples of the dividend growth investing strategy in practice. This helps readers gain a deeper understanding of how to implement and benefit from this investment approach.
DGI Thoughts
“Most managers of dividend funds skew toward income: our strategy picks up both, income and growth. When you have the growing income, you have growing capital.”
-Tom Connolly
The average 12-month result for the 10 dividend funds in this fifth instalment of the 2023 Globe and Mail ETF Buyer’s Guide was a loss of -5.7 per cent (Globe & Mail)
The financial media published a couple of articles on Dividend ETFs last week that finally shed some light for the everyday investor on what we have been saying all along. This article not only highlights some of the issues with dividend ETFs but the problem with ETFs in general.
Here are a few takeaways from the article:
- Yields vary widely amongst dividend ETFs depending on the mandate of the fund.
- Canadian dividend ETFs are overweighted in too few sectors which can affect returns when those sectors experience a downturn (think energy and financials).
- The bar for entry is low (3 years dividend growth in some cases).
- Some ETFs payout dividends received while others reinvest which limits the dividend income you’ve earned.
Here are few more reasons why dividend ETFs are not as good as holding some of your own individual dividend growth companies:
- Not enough emphasis on growth and too much on yield.
- ETFs are typically fully invested. No ‘dry powder’ when downdraft begins.
- You pay fees which chip away at returns.
- Professionals can’t afford to lose alone. They must conform.
If you rely on dividend ETFs or funds for income, it’s worth examining their track records and considering whether you could have achieved better results with your own dividend growth portfolio. You may be pleasantly surprised by how well you perform compared to the professionals. Additionally, managing your own portfolio ensures a more reliable and growing income stream.
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Recent News
Why dividend growth investors may want to pass on ETFs (Globe & Mail)
“Unfortunately, dividend growth in the stocks held by a dividend ETF doesn’t always translate into dividend growth for investors holding the fund. If you look at the dollar amount of eligible dividends these funds pay, you’ll find they tend to move both up and down over the years.”
Our blog has long been critical of ETFs, especially dividend ETFs, as they often suffer from issues such as under-diversification, too many subpar holdings, and high fees, all of which can erode income and returns.
Although the ETF may be constructed with dividend-growth stocks, the varying levels of cash dividends instead of steadily increasing payouts makes you wonder what is going on. By building your own portfolio of only the best dividend growers, your income is dependable and always growing. This article provides another compelling reason to be cautious of dividend ETFs.
If you have time, check out our decade long performance versus the CDZ-T ETF here and you will understand why.
Algonquin Power & Utilities terminates deal to buy Kentucky Power (Globe & Mail)
“The US$2.6-billion deal to acquire Kentucky Power from American Electric Power Co. Inc. was announced in October, 2021, when borrowing costs were low and Algonquin – a significant renewable-energy producer and regulated electricity provider – was riding a wave of investor confidence that supported debt and share issuance necessary for larger acquisitions.”
It’s common knowledge what occurred subsequently: Algonquin reduced its dividend by 40% in January and unveiled plans to offload $1 billion worth of assets in order to bolster its balance sheet and safeguard its credit rating.
The piece highlights Ancora Holdings Group, an activist investor holding Algonquin shares, which recommends that Algonquin proceed with its asset sales to restore investor confidence. As Algonquin will no longer be on ‘The List’ next year after their dividend cut, we need not be concerned about the eventual outcome. Rather, our attention will be on management teams that we are familiar with and have faith in.
The List (2023)
Last updated by BM on April 21, 2023
The Magic Pants List contains 27 Canadian dividend growth stocks. ‘The List’ contains Canadian companies that have raised their dividend yearly for at least the last ten years and have a market cap of over a billion dollars. Below is each stock’s symbol, name, current yield, current price, price return year-to-date, current dividend, dividend growth year-to-date and current dividend growth streak. Companies on ‘The List’ are added or subtracted once a year, on January 1. After that, ‘The List’ is set for the next twelve months. Prices and dividends are updated weekly.
| SYMBOL | COMPANY | YLD | PRICE | YTD % | DIV | YTD % | STREAK |
|---|---|---|---|---|---|---|---|
| AQN-N | Algonquin Power & Utilities | 6.1% | $8.35 | 24.1% | $0.51 | -29.0% | 12 |
| ATD-T | Alimentation Couche-Tard Inc. | 0.8% | $67.70 | 12.6% | $0.56 | 19.1% | 13 |
| BCE-T | Bell Canada | 5.9% | $64.44 | 7.0% | $3.82 | 5.0% | 14 |
| BIP-N | Brookfield Infrastructure Partners | 4.4% | $35.19 | 5.2% | $1.44 | 6.3% | 15 |
| CCL-B-T | CCL Industries | 1.6% | $65.55 | 12.9% | $1.06 | 10.4% | 21 |
| CNR-T | Canadian National Railway | 1.9% | $166.53 | 2.2% | $3.16 | 7.8% | 27 |
| CTC-A-T | Canadian Tire | 3.8% | $183.00 | 24.8% | $6.90 | 17.9% | 12 |
| CU-T | Canadian Utilities Limited | 4.6% | $39.09 | 5.8% | $1.79 | 1.0% | 51 |
| DOL-T | Dollarama Inc. | 0.3% | $84.77 | 6.1% | $0.27 | 23.8% | 12 |
| EMA-T | Emera | 4.7% | $58.40 | 11.0% | $2.76 | 3.0% | 16 |
| ENB-T | Enbridge Inc. | 6.7% | $53.23 | -0.2% | $3.55 | 3.2% | 27 |
| ENGH-T | Enghouse Systems Limited | 2.2% | $37.93 | 6.2% | $0.85 | 18.2% | 16 |
| FNV-N | Franco Nevada | 0.9% | $152.30 | 10.2% | $1.36 | 6.3% | 15 |
| FTS-T | Fortis | 3.8% | $59.82 | 8.1% | $2.26 | 4.1% | 49 |
| IFC-T | Intact Financial | 2.2% | $203.44 | 3.9% | $4.40 | 10.0% | 18 |
| L-T | Loblaws | 1.3% | $124.91 | 3.8% | $1.62 | 5.2% | 11 |
| MGA-N | Magna | 3.5% | $52.56 | -8.6% | $1.84 | 2.2% | 13 |
| MRU-T | Metro | 1.6% | $76.28 | 1.1% | $1.21 | 10.0% | 28 |
| RY-T | Royal Bank of Canada | 3.9% | $135.30 | 5.7% | $5.28 | 6.5% | 12 |
| SJ-T | Stella-Jones Inc. | 1.7% | $53.73 | 8.4% | $0.92 | 15.0% | 18 |
| STN-T | Stantec Inc. | 0.9% | $81.93 | 25.4% | $0.77 | 8.5% | 11 |
| TD-T | TD Bank | 4.6% | $83.55 | -4.7% | $3.84 | 7.9% | 12 |
| TFII-N | TFI International | 1.2% | $119.11 | 19.0% | $1.40 | 29.6% | 12 |
| TIH-T | Toromont Industries | 1.6% | $108.16 | 10.7% | $1.68 | 10.5% | 33 |
| TRP-T | TC Energy Corp. | 6.6% | $55.78 | 4.7% | $3.69 | 3.4% | 22 |
| T-T | Telus | 4.9% | $28.73 | 9.2% | $1.40 | 5.4% | 19 |
| WCN-N | Waste Connections | 0.7% | $145.10 | 10.2% | $1.02 | 7.9% | 13 |
| Averages | 3.0% | 8.3% | 8.1% | 19 |
Six Canadian stocks on ‘The List’ declare earnings and dividends in US dollars and are inter-listed on a US exchange in US dollars. The simplest way to display dividend and price metrics for these stocks is to show their US exchange symbols along with their US dividends and price. The stocks I am referring to have a -N at the end of their symbols. You can still buy their Canadian counterparts (-T), but your dividends will be converted into CDN dollars and will fluctuate based on the exchange rate.
Note: When the dividend and share price currency match, the calculation is straightforward. But it’s not so simple when the dividend is declared in one currency, and the share price is quoted in another. Dividing the former by the latter would produce a meaningless result because it’s a case of apples and oranges. To calculate the yield properly, you must express the dividend and share price in the same currency.
Performance of ‘The List’
Feel free to click on this link, ‘The List’ for a sortable version from our website.
Last week, ‘The List’ was up again with a YTD price return of +8.3% (capital). Dividend growth remained the same and is now at +8.1% YTD, highlighting growth in income over the past year.
The best performers last week on ‘The List’ were Stantec Inc. (STN-T), up +3.62%; TD Bank (T-T), up +2.77%; and Intact Financial (IFC-T), up +2.50%.
Enghouse Systems Limited (ENGH-T) was the worst performer last week, down -5.08%.
Dividend Increases
“The growth of dividend paying ability is of significance in the determination of a stock’s quality, or general safety…”
– Arnold Bernhard (the founder of Value Line)
“As a dividend increase is a positive sign of a company’s financial strength, the safest purchase, after research, is a stock with a recent dividend increase.”
– Tom Connolly (the founder of dividendgrowth.ca)
Last week, no dividend increases from companies on ‘The List’.
Earnings Releases
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.
The updated earnings calendar can be found here.
Earnings growth and dividend growth tend to go hand in hand, so this information can tell us a lot about the 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.
Six companies on ‘The List’ ares due to report earnings this week.
Q1 earnings season is about to kick into high gear. Six companies on ‘The List’ are due to report earnings this week.
Canadian National Railway (CNR-T) will release its first-quarter fiscal 2023 results on Monday, April 24, 2023, after markets close.
TFI International (TFII-N) will release its first-quarter fiscal 2023 results on Tuesday, April 25, 2023, after markets close.
Waste Connections (WCN-N) will release its first-quarter fiscal 2023 results on Wednesday, April 26, 2023, after markets close.
Toromont Industries (TIH-T) will release its first-quarter fiscal 2023 results on Thursday, April 27, 2023, after markets close.
Canadian Utilities Limited (CU-T) will release its first-quarter fiscal 2023 results on Thursday, April 27, 2023, before markets open.
TC Energy (TRP-T) will release its first-quarter fiscal 2023 results on Friday, April 28, 2023, before markets open.
Last week, one earnings report from companies on ‘The List’.
Metro (MRU-T) released its second-quarter fiscal 2023 results on Wednesday, April 19, 2023, before markets opened.
“We are pleased with our results in the second quarter as our teams continued to deliver value to our customers in the current high food inflation environment with competitive everyday prices, growing private label sales and effective promotional strategies. We will continue to invest in our people, our retail network and the modernization of our supply chain, and we are well positioned to achieve our long-term growth objectives. Finally, we are looking forward to the launch of our new loyalty program MOİ later this spring.”
– President and Chief Executive Officer, Eric La Fleche
Highlights:
2023 SECOND QUARTER HIGHLIGHTS
- Sales of $4,554.5 million, up 6.6%
- Food same-store sales up 5.8%
- Pharmacy same-store sales up 7.3%
- Net earnings of $218.8 million, up 10.4%, and adjusted net earnings of $225.4 million, up 10.1%
- Fully diluted net earnings per share of $0.93, up 13.4%, and adjusted fully diluted net earnings per share of $0.96, up 14.3%
Outlook:
We remain focused on offering quality products at competitive prices as higher than normal inflation and market challenges persist. While we are not able to predict how the current macro-economic environment will evolve, we are seeing some moderation in food inflation, although it is still elevated compared to pre-pandemic levels. With this backdrop, we remain resilient and committed to providing the best value for our customers.
Source: (MRU-T) Q2-2023 Earnings Release
