Last updated by BM on December 05, 2022
Summary
- This article is part of our weekly series (MP Market Review) highlighting the performance and activity from the previous week related to the financial markets and Canadian dividend growth companies we follow on ‘The List’.
- Last week, ‘The List’ was up slightly with a minus -1.3% YTD price return (capital). Dividend growth of ‘The List’ remains at +10.6% YTD, demonstrating the rise in income over the last year.
- Last week, there were three dividend increases from companies on ‘The List’.
- Last week, there were two earnings reports from companies on ‘The List’.
- No companies on ‘The List’ are due to report earnings this week.
- Are you looking to build an income portfolio of your own? When you become a premium subscriber, you get exclusive access to the MP Wealth-Builder Model Portfolio (CDN) and subscriber-only content. Start building real wealth today! Learn More
“As Keynes wrote in 1936, “attach your hopes to its prospective yield”. It’s not the dividend that has the magic; it’s the increasing dividends that drive growing wealth. Realize this difference; it’s crucial.”
– Tom Connolly
We have spent some time this fall condensing everything we have read about dividend growth investing (DGI) over the past two decades and are in the process of creating a blog article on what we consider DGI Truths.
One of those truths we discovered is that we can’t control economic cycles (markets), but we can control income.
Nowhere is this more true than in the North American stock markets this year. In 2022 we have seen some amazing swings in market values with the overall trend downward. The markets, at times, have seemed out of control.
On the flipside, we continue to add quality dividend growers to our portfolios, and every one of the companies we own has increased its dividend again in 2022. An example of dividend growth investing in action is shown on ‘The List’ we follow on the blog. Although there is plenty of price volatility in the companies we follow, all have raised their dividend and has posted an average increase of 10.6%! There has been no volatility when it comes to income.
Aside from having good dividend growth records, one of the reasons we have confidence in future income growth is that the dividend growth companies we follow do a good job of communicating dividend payout guidance/policies in their investor presentations. Some have already increased their dividends again (as they said they would) in 2023. See the dividend increases section below for three examples.
In summary, we have learned that dividend growth in quality companies is very predictable year over year and is something we can rely on. Every once in a while, there is a dividend freeze or dividend cut, but overall, our portfolio income grows yearly.
If you are looking for peace of mind and predictability with your investments in 2023, maybe it’s time to change how you keep score. Stop looking at the value of your portfolio and keep your score based on income growth. You will be much happier with your investment decisions.
A second truth, which we will discuss in more detail next week, is that a rising dividend income stream will eventually lead to rising stock prices.
Performance of ‘The List’
At the end of the post is a snapshot of ‘The List’ from last Friday’s close. Feel free to click on the ‘The List’ menu item above for a sortable version.
Last week, ‘The List’ was up slightly with a minus -1.3% YTD price return (capital). Dividend growth of ‘The List’ remains at +10.6% YTD, demonstrating the rise in income over the last year.
The best performers last week on ‘The List’ were Enghouse Systems Limited (ENGH-T), up +4.80%; Loblaws (L-T), up +3.85%; and Dollarama Inc. (DOL-T), up +3.76%.
TC Energy Corp. (TRP-T) was the worst performer last week, down -11.79%.
Recent News
Grocery costs to rise by up to 7% in 2023 as pandemic, Russia’s war fuel increase, report says (Globe & Mail)
“Canada’s Food Price Report says the cost of groceries will increase by 5 per cent to 7 per cent in 2023, compounding the financial burden of a year of record-high food inflation that saw prices climb 10.3 per cent between November, 2021, and September, 2022.
By way of comparison, in its October Monetary Policy Report, the Bank of Canada said it expects the consumer price index to fall to about 3 per cent by late 2023.”
Who to believe?
The article says that the Canadian dollar is the critical piece right now as it can impact the cost of imports.
Do you still think that the Bank of Canada has inflation under control, or are more interest rate hikes more probable than not?
Forecasters split on how high Bank of Canada will push next rate hike (Globe & Mail)
“The central bank has raised interest rates six times since March in an effort to tackle the highest inflation in four decades. Higher rates make it more expensive for Canadians to borrow money and service their existing debts, with the goal of curbing demand for goods and services and acting as a brake on price increases.”
The article says forecasters are split on whether we get a 50 basis point hike now or two 25 basis point hikes in the next two months.
We must be careful and not rush into the market or get caught up in all the talk about a ‘fed pivot’. The point is that all agree that interest rates will continue to rise, and this will slow down the economy, which will impact earnings. How much and how fast these rates rise will always be up for debate.
Dividend Increases
Three companies on ‘The List’ announced a dividend increase last week.
Royal Bank (RY-T) on Wednesday said it increased its 2023 quarterly dividend from $1.28 to $1.32 per share, payable February 24, 2023, to shareholders of record on January 26, 2023.
This represents a dividend increase of +3%, marking the 12th straight year of dividend growth for this quality financial institution.
Enbridge Inc. (ENB-T) on Wednesday said it increased its 2023 quarterly dividend from $3.44 to $3.55 per share, payable March 1, 2023, to shareholders of record on February 14, 2023.
This represents a dividend increase of +3.2%, marking the 27th straight year of dividend growth for this oil and gas midstream company.
TD Bank (TD-T) on Thursday said it increased its 2023 quarterly dividend from $0.89 to $0.96 per share, payable January 31, 2023, to shareholders of record on January 6, 2023.
This represents a dividend increase of +7.9%, marking the 12th straight year of dividend growth for this quality financial institution.
Earnings Releases
No companies on ‘The List’ are due to report earnings this week.
Both Royal Bank (RY-T) and TD Bank (TD-T) follow an off-cycle reporting schedule. Their fiscal year ends on October 31 each year. Their fiscal Q4 earnings were reported last week.
Royal Bank of Canada (RY-T) released its fourth-quarter 2022 results on Wednesday, November 30, 2022, before markets opened.
“While market conditions continue to be tough, our 2022 results reflect a resilient bank that is well-positioned to pursue strategic growth and deliver long-term shareholder value. Our premium businesses, strong balance sheet, prudent risk management and diversified business model mean we can deliver advice and services that help our clients navigate all cycles. RBC colleagues remain focused on building more exceptional experiences for our clients and supporting sustainable and prosperous communities.”
– RBC President and Chief Executive Officer, Dave McKay
Highlights:
2022 Full-Year Business Segment Performance
- 7% earnings growth in Personal & Commercial Banking, primarily attributable to higher net interest income, driven by average volume growth of 9% in both loans and deposits in Canadian Banking, and higher spreads. As a result of the rising interest rate environment (Bank of Canada raised the benchmark interest rate by 350 bps from March to October 2022), we saw higher spreads as compared to the prior year. Higher non-interest income, including higher foreign exchange revenue, card service revenue and service charges driven by increased client activity also contributed to the increase in earnings. These factors were partially offset by higher PCL, and higher staff and technology related costs. Our Canadian Banking franchise generated strong positive operating leverage of 3.8% while continuing to invest in digital initiatives to improve the client experience and deliver personalized advice.
- 20% earnings growth in Wealth Management, mainly due to higher net interest income driven by average volume growth of 19% in loans and 11% in deposits largely in U.S. Wealth Management (including City National), and higher interest rates. Higher average fee-based client assets primarily reflecting net sales, as well as the impact of a legal provision taken in U.S. Wealth Management (including City National) in the prior year that was partially released in the first quarter of 2022, also contributed to the increase. These factors were partially offset by higher staff-related costs and variable compensation.
- 4% lower earnings in Insurance, largely due to the impact of lower new longevity reinsurance contracts, partially offset by higher favourable investment-related experience.
- 17% earnings growth in Investor & Treasury Services, mainly due to higher revenue from client deposits reflecting improved margins, partially offset by higher technology-related costs.
- 30% lower earnings in Capital Markets, primarily driven by lower revenue in Corporate & Investment Banking, larger releases of provisions on performing assets in the prior year and lower revenue in Global Markets. Global investment banking fee pools were impacted by weakness in credit and equity markets beginning in the second fiscal quarter of 2022, resulting in an approximately 30% decline in global investment banking fee pools9 this fiscal year compared to record levels in fiscal 2021.
Outlook:
“Before I discuss the strategic initiatives that will drive our growth over the coming years, I will provide my perspective on the macro environment. Elevated uncertainty continues to affect asset valuations and market volatility, which in turn is impacting investor sentiment and client activity in both public and private markets.
While strong labour markets paint a favourable picture, and inflation appears to have peaked, we maintain our cautious stance on the outlook for economic growth. This caution stems from elevated housing and energy prices, political and geopolitical instability, a pressured manufacturing sector, and an aggressive monetary policy stance by central banks. Although higher interest rates are needed to preserve long-term economic stability, the lagging impact of monetary policy combined with strong employment and significant liquidity in the system has likely delayed what may end up being a brief and moderate recession.”
– President & Chief Executive Officer, Dave McKay
See the full Earnings Release here
TD Bank (TD-T) released its fourth-quarter 2022 results on Thursday, December 1, before markets opened.
“I’m extremely pleased with our earnings performance this quarter, which capped off a strong year demonstrating the benefit of our diversified business model and prudent risk and financial management. The strength and resilience of our franchise enabled the Bank to invest in our business and deliver for our shareholders.”
– President & Chief Executive Officer, Bharat Masrani
Highlights:
FOURTH QUARTER FINANCIAL HIGHLIGHTS, compared with the fourth quarter last year:
- Reported diluted earnings per share were $3.62 compared with $2.04.
- Adjusted diluted earnings per share were $2.18, compared with $2.09.
- Reported net income was $6,671 million, compared with $3,781 million.
- Adjusted net income was $4,065 million, compared with $3,866 million.
FULL YEAR FINANCIAL HIGHLIGHTS, compared with last year:
- Reported diluted earnings per share were $9.47, compared with $7.72.
- Adjusted diluted earnings per share were $8.36, compared with $7.91.
- Reported net income was $17,429 million, compared with $14,298 million.
- Adjusted net income was $15,425 million, compared with $14,649 million.
Outlook:
For the year ahead, there are both tailwinds (including the interest rate environment and the anticipated closing of the announced acquisitions) and headwinds (including geopolitical tensions, the complex operating environment, and the potential for an economic slowdown). On balance, unless macroeconomic conditions were to shift dramatically, TD expects to meet or exceed its medium-term adjusted EPS growth target range of 7-10% in fiscal 2023.
We enter 2023 from a position of strength, with growing businesses and a powerful purpose-driven brand. While there will be macroeconomic and geopolitical challenges in the year ahead, the progress we made in 2022 gives me great confidence in our future success,” added Masrani.
Below is a snapshot of ‘The List’ from last Friday’s close. For a sortable version of ‘The List’, please click on The List menu item.
‘The List’ is not meant to be a template for investors to copy exactly. Instead, its purpose is to provide investment ideas and a real-time illustration of dividend growth investing in action. It is not a ‘Buy List’ nor does it reflect the composition or returns of our Magic Pants Wealth-Builder (CDN) Portfolio. It is only a starting point for our analysis and discussion.
The List (2022)
Last updated by BM on December 02, 2022
*Note: The following graph is wide, you can scroll to the right on your device to see more of the data.
| SYMBOL | COMPANY | YLD | PRICE | YTD % | DIV | YTD % | STREAK |
|---|---|---|---|---|---|---|---|
| AQN-N | Algonquin Power & Utilities | 9.3% | $7.55 | -47.4% | $0.70 | 5.4% | 11 |
| ATD-T | Alimentation Couche-Tard Inc. | 0.8% | $61.38 | 17.8% | $0.47 | 26.2% | 12 |
| BCE-T | Bell Canada | 5.7% | $63.65 | -3.4% | $3.64 | 4.0% | 13 |
| BIP-N | Brookfield Infrastructure Partners | 4.1% | $35.35 | -13.2% | $1.44 | 5.9% | 14 |
| CCL-B-T | CCL Industries | 1.5% | $62.38 | -8.0% | $0.96 | 14.3% | 20 |
| CNR-T | Canadian National Railway | 1.7% | $172.04 | 11.1% | $2.93 | 19.1% | 26 |
| CTC-A-T | Canadian Tire | 3.8% | $155.49 | -15.1% | $5.85 | 21.1% | 11 |
| CU-T | Canadian Utilities Limited | 4.9% | $36.40 | -0.6% | $1.78 | 1.0% | 50 |
| DOL-T | Dollarama Inc. | 0.3% | $83.79 | 32.1% | $0.22 | 9.2% | 11 |
| EMA-T | Emera | 5.1% | $52.33 | -16.4% | $2.68 | 4.1% | 15 |
| ENB-T | Enbridge Inc. | 6.3% | $54.69 | 10.4% | $3.44 | 3.0% | 26 |
| ENGH-T | Enghouse Systems Limited | 2.3% | $31.63 | -31.0% | $0.72 | 16.3% | 15 |
| FNV-N | Franco Nevada | 0.9% | $145.54 | 6.9% | $1.28 | 10.3% | 14 |
| FTS-T | Fortis | 4.0% | $54.07 | -10.6% | $2.17 | 4.3% | 48 |
| IFC-T | Intact Financial | 2.0% | $204.68 | 25.0% | $4.00 | 17.6% | 17 |
| L-T | Loblaws | 1.3% | $122.28 | 19.0% | $1.54 | 12.4% | 10 |
| MGA-N | Magna | 2.9% | $61.30 | -24.9% | $1.80 | 4.7% | 12 |
| MRU-T | Metro | 1.4% | $77.67 | 15.9% | $1.10 | 12.2% | 27 |
| RY-T | Royal Bank of Canada | 3.7% | $134.21 | -1.9% | $4.96 | 14.8% | 11 |
| SJ-T | Stella-Jones Inc. | 1.6% | $48.98 | 20.4% | $0.80 | 11.1% | 17 |
| STN-T | Stantec Inc. | 1.0% | $67.61 | -3.7% | $0.71 | 6.8% | 10 |
| TD-T | TD Bank | 3.9% | $92.36 | -7.0% | $3.56 | 12.7% | 11 |
| TFII-N | TFI International | 1.0% | $105.82 | -4.5% | $1.08 | 12.5% | 11 |
| TIH-T | Toromont Industries | 1.5% | $103.48 | -9.0% | $1.52 | 15.2% | 32 |
| TRP-T | TC Energy Corp. | 6.1% | $58.19 | -2.6% | $3.57 | 4.4% | 21 |
| T-T | Telus | 4.7% | $28.60 | -3.9% | $1.33 | 6.2% | 18 |
| WCN-N | Waste Connections | 0.6% | $145.45 | 8.5% | $0.95 | 11.8% | 12 |
| Averages | 3.0% | -1.3% | 10.6% | 18 |
