Last updated by BM on December 19, 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 down slightly with a minus -4.5% 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 no dividend increases from companies on ‘The List’.
- Last week, there was one earnings report from a company 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
“Cash is not a safe investment; it is not a safe place because it will be taxed by inflation.”
– Ray Dalio
DGI Truth #3: Dividend growth investors enjoy inflation-protected income
With annual inflation rates at or below 2% for most of the last decade, there was not a lot of attention paid to ones purchasing power over time. That has changed, with inflation rates in the mid to high single digits. Many investors are now not keeping pace or are falling behind.
Dividend growth investing keeps pace with inflation in two ways. The most obvious is the growth rate of the dividend. If the dividend grows faster than the inflation rate, your income’s purchasing power is protected. The second way is by investing in a portfolio of dividend growth stocks that have the potential to generate price returns that are higher than the rate of inflation over time.
When the central banks talk about inflation in the news, we can quickly look at our dividend growth YTD% and measure how we are doing. Last we checked, the inflation rate was between 6-7%, and our sample dividend growth portfolio DIV YTD% was up 10.6% (‘The List’).
It is important to point out, though, that our PRICE YTD% column from ‘The List’ did not keep pace with inflation this year. That can sometimes happen in the short term, but I have yet to see it over longer time horizons.
By focusing on the dividend growth rate every year, we have a metric where we can easily see the effects inflation has on our purchasing power. We know from our other DGI Truths that our capital will soon rise above the inflation rate, even if it is not evident in the short term.
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 down slightly with a minus -4.5% 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 +8.46%; TFI International (TFII-N), up +1.60%; and Canadian Utilities Limited (CU-T), up +0.40%.
Franco Nevada (FNV-N) was the worst performer last week, down -5.90%.
Recent News
TC Energy’s Keystone rupture is bad news. Here’s why investors aren’t concerned (Globe & Mail)
“It was one of the largest oil spills in the United States in more than a decade. But the impact on TC Energy’s share price has been muted, to say the least.”
Although the news is a bit alarming, history has shown that these types of spills have a negligible impact on earnings. Smart investors often use such narratives to buy more (TRP-T) on any sign of price weakness. TC Energy is a quality company in an industry that has many barriers to entry, not to mention a dividend growth streak of 22 years and counting.
Rate hikes could cast long shadow as Bank of Canada approaches pause (Globe & Mail)
https://www.theglobeandmail.com/business/article-bank-of-canada-interest-rate-hikes-pause/
“Economists at Royal Bank of Canada estimate that the average household will have around $3,000 less in purchasing power next year, after accounting for inflation and higher debt costs. RBC is forecasting a “mild” recession next year as consumers spend less.”
Last week’s weakness in the stock markets came about just after the US Federal Reserve announced another 50 basis point interest rate hike. The Fed Chair, Jerome Powell, also said that the US wasn’t finished and expects further rate hikes in 2023.
Although Canada’s central bank has not been as vocal, we would most likely get hurt by anything the U.S. decides to do. If we don’t raise rates alongside the U.S. we could see our loonie go down and further exacerbate Canadian inflation.
At a minimum, it is more probable than not that growth is likely to slow in 2023, impacting earnings for some of the dividend growers we follow.
Dividend Increases
Last week, there were no dividend increases from companies on ‘The List’.
Earnings Releases
No companies on ‘The List’ are due to report earnings this week.
One company, Enghouse Systems Limited (ENGH-T) released its fourth-quarter 2022 results last week on Wednesday, December 15, 2022, after markets closed.
“We have consistently demonstrated, even during adverse economic conditions, that we can generate positive operating cash flows and augment our cash reserves to be deployed for acquisitions and further investment in our business. We believe that our financial discipline, product approach and commitment to customers, partners and employees will continue to drive long-term shareholder value.”
– Chief Executive Officer, Stephen Sadler
Highlights:
Financial and operational highlights for the three and twelve months ended October 31, 2022, compared to the three and twelve months ended October 31, 2021, are as follows:
- Revenue achieved was $108.1 and $427.6 million, respectively, compared to revenue of $113.1 and $467.2 million;
- Results from operating activities was $33.1 and $129.7 million, respectively, compared to $39.1 and $155.2 million;
- Net income was $36.9 and $94.5 million, respectively, compared to $30.2 and $92.8 million;
- Adjusted EBITDA was $35.8 and $140.6 million, respectively, compared to $42.1 and $168.5 million while Adjusted EBITDA margins were 33.1% and 32.9%, respectively, compared to 37.2% and 36.1%;
- Cash flows from operating activities excluding changes in working capital was $37.7 and $145.1 million, respectively, compared to $42.4 and $167.8 million;
- Cash, cash equivalents and short-term investments were $228.1 million as at October 31, 2022 compared to $198.8 million at the end of the prior year.
Outlook:
COVID-19 continues to have a lessened impact on our business each quarter as it recedes from the public and business conscience. With the exclusion of the comparative negative impact to revenue in the first quarter of 2022, it had minimal impact on how we operated when comparing fiscal 2022 to fiscal 2021. We continue to monitor the ongoing situation with most of our offices returning to a hybrid work environment. We are beginning to see customer-related travel become more common but are focused on this cost to ensure it is generating appropriate revenue relative to the expense.
As we see a growing demand for SaaS solutions, as with all our revenue streams, we are careful to ensure that sales are achieved without sacrificing profitability, particularly as we observe some competitors reducing prices in an effort to retain revenue growth without achieving profitability.
As a result, we are also focused on ensuring our pricing is set appropriately to provide adequate margins. In light of future economic uncertainty, we remain cautiously optimistic and will exercise continued diligence on controlling expenses and take a conservative approach towards committing to new expenses. A large portion of our planning focuses on matching revenues with expenses such that we can continue to invest where outlooks are positive and curtail spending where unforeseen economic events may adversely impact our profitability. As always, we maintain our financial discipline when seeking earnings-accretive acquisitions to grow our revenue and further expand both our product suite and geographic reach, while maintaining our commitment to profitable growth. We will continue to operate our business consistent with our value-for-money philosophy that we believe provides shareholder value in the long term.
See the full Earnings Release here
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 intended to be a portfolio others replicate. Rather, 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 reflects the composition or returns of our Magic Pants Wealth-Builder (CDN) Portfolios. It is only a starting point for our analysis and discussion of dividend growth investing concepts.
The List (2022)
Last updated by BM on December 16, 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 | 10.2% | $6.89 | -52.0% | $0.70 | 5.4% | 11 |
| ATD-T | Alimentation Couche-Tard Inc. | 0.8% | $61.25 | 17.6% | $0.47 | 26.2% | 12 |
| BCE-T | Bell Canada | 6.0% | $60.39 | -8.4% | $3.64 | 4.0% | 13 |
| BIP-N | Brookfield Infrastructure Partners | 4.5% | $32.01 | -21.4% | $1.44 | 5.9% | 14 |
| CCL-B-T | CCL Industries | 1.6% | $59.21 | -12.7% | $0.96 | 14.3% | 20 |
| CNR-T | Canadian National Railway | 1.8% | $166.46 | 7.5% | $2.93 | 19.1% | 26 |
| CTC-A-T | Canadian Tire | 4.1% | $143.29 | -21.8% | $5.85 | 21.1% | 11 |
| CU-T | Canadian Utilities Limited | 4.7% | $37.47 | 2.3% | $1.78 | 1.0% | 50 |
| DOL-T | Dollarama Inc. | 0.3% | $81.00 | 27.7% | $0.22 | 9.2% | 11 |
| EMA-T | Emera | 5.1% | $52.54 | -16.1% | $2.68 | 4.1% | 15 |
| ENB-T | Enbridge Inc. | 6.5% | $52.54 | 6.1% | $3.44 | 3.0% | 26 |
| ENGH-T | Enghouse Systems Limited | 2.0% | $35.00 | -23.7% | $0.72 | 16.3% | 15 |
| FNV-N | Franco Nevada | 1.0% | $132.50 | -2.6% | $1.28 | 10.3% | 14 |
| FTS-T | Fortis | 3.9% | $55.06 | -9.0% | $2.17 | 4.3% | 48 |
| IFC-T | Intact Financial | 2.0% | $198.10 | 21.0% | $4.00 | 17.6% | 17 |
| L-T | Loblaws | 1.3% | $122.14 | 18.9% | $1.54 | 12.4% | 10 |
| MGA-N | Magna | 3.2% | $57.11 | -30.0% | $1.80 | 4.7% | 12 |
| MRU-T | Metro | 1.4% | $76.69 | 14.4% | $1.10 | 12.2% | 27 |
| RY-T | Royal Bank of Canada | 3.9% | $127.96 | -6.5% | $4.96 | 14.8% | 11 |
| SJ-T | Stella-Jones Inc. | 1.7% | $47.70 | 17.3% | $0.80 | 11.1% | 17 |
| STN-T | Stantec Inc. | 1.1% | $66.12 | -5.8% | $0.71 | 6.8% | 10 |
| TD-T | TD Bank | 4.1% | $86.63 | -12.8% | $3.56 | 12.7% | 11 |
| TFII-N | TFI International | 1.0% | $105.53 | -4.7% | $1.08 | 12.5% | 11 |
| TIH-T | Toromont Industries | 1.5% | $100.45 | -11.6% | $1.52 | 15.2% | 32 |
| TRP-T | TC Energy Corp. | 6.5% | $55.17 | -7.6% | $3.57 | 4.4% | 21 |
| T-T | Telus | 4.9% | $27.03 | -9.2% | $1.33 | 6.2% | 18 |
| WCN-N | Waste Connections | 0.7% | $134.50 | 0.3% | $0.95 | 11.8% | 12 |
| Averages | 3.2% | -4.5% | 10.6% | 18 |
