Last updated by BM on February 20, 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’ exhibited a YTD price return of +5.4% (capital), while its dividend growth increased to +5.6% YTD, highlighting a growth in income over the past year.
- Last week, there were two dividend increases from companies on ‘The List’.
- Last week, there were four earnings reports from companies on ‘The List’.
- Four companies on ‘The List’ are due to report earnings this week.
- If you’re interested in creating your own 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 a $100. You take $1 out of the left pocket and put in the right pocket. You now have a $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 in 2012 and was the catalyst 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 Canadian 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.
Recent News
Job growth is surging, but the picture is more complicated (Globe & Mail)
Just a few months ago, negative news appeared to have a positive impact on the stock market. Every time the central banks announced interest rate increases, stocks would surge higher. This was because it was believed that the interest rate hikes were coming to a close, and as a result, a bull market was on the horizon. However, the situation has now reversed, and positive news is having a negative impact on the stock market.
Although core inflation figures have ceased to accelerate and have even declined slightly, job creation is continuing to increase, indicating that wage growth is not subsiding. Given that overall inflation is not decreasing rapidly enough, central bankers may be compelled to resume raising interest rates to further cool down the economy. However, this could exacerbate the situation as it may negatively impact company earnings, which are already declining.
I appreciate the author’s probability scale, which outlines his assessment of the market forecast with the greatest likelihood.
Inflation will be harder to bring down than markets think (The Economist)
This article backs up the previous one but goes a step further. The author predicts a “nasty correction”!
“America’s “core” prices, which exclude volatile food and energy, grew at an annualized pace of 4.6% over the past three months, and have started gently accelerating. The main source of inflation is now the services sector, which is more exposed to labour costs. In America, Britain, Canada and New Zealand wage growth is still much higher than is consistent with the 2% inflation targets of their respective central banks; pay growth is lower in the euro area, but rising in important economies such as Spain.”
The author concludes that central bankers in wealthy nations have not indicated any intention to change their stance. However, even if inflation declines or they abandon their efforts to combat it, policymakers are unlikely to execute a seamless shift. Investors have positioned themselves for frustration, whether it’s due to persistently high rates, a recession, or a turbulent period of policy transition.
The List (2023)
Last updated by BM on February 17, 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. Provided 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 | 6.5% | $7.83 | 16.3% | $0.51 | -29.0% | 12 |
| ATD-T | Alimentation Couche-Tard Inc. | 0.9% | $65.59 | 9.1% | $0.56 | 19.1% | 13 |
| BCE-T | Bell Canada | 6.2% | $61.78 | 2.6% | $3.82 | 5.0% | 14 |
| BIP-N | Brookfield Infrastructure Partners | 4.4% | $32.95 | 5.2% | $1.44 | 6.3% | 15 |
| CCL-B-T | CCL Industries | 1.6% | $61.63 | 6.2% | $0.96 | 0.0% | 21 |
| CNR-T | Canadian National Railway | 2.0% | $157.22 | -3.5% | $3.16 | 7.8% | 27 |
| CTC-A-T | Canadian Tire | 4.0% | $174.64 | 19.1% | $6.90 | 17.9% | 12 |
| CU-T | Canadian Utilities Limited | 4.9% | $36.49 | -1.2% | $1.78 | 0.0% | 51 |
| DOL-T | Dollarama Inc. | 0.3% | $79.92 | 0.1% | $0.22 | 2.3% | 12 |
| EMA-T | Emera | 5.0% | $54.77 | 4.1% | $2.76 | 3.0% | 16 |
| ENB-T | Enbridge Inc. | 6.8% | $52.38 | -1.8% | $3.55 | 3.2% | 27 |
| ENGH-T | Enghouse Systems Limited | 1.7% | $42.46 | 18.9% | $0.74 | 3.5% | 16 |
| FNV-N | Franco Nevada | 1.0% | $132.45 | -4.1% | $1.36 | 6.3% | 15 |
| FTS-T | Fortis | 4.1% | $55.74 | 0.7% | $2.26 | 4.1% | 49 |
| IFC-T | Intact Financial | 2.2% | $202.70 | 3.5% | $4.40 | 10.0% | 18 |
| L-T | Loblaws | 1.4% | $118.89 | -1.2% | $1.62 | 5.2% | 11 |
| MGA-N | Magna | 3.3% | $56.60 | -1.6% | $1.84 | 2.2% | 13 |
| MRU-T | Metro | 1.7% | $71.90 | -4.7% | $1.21 | 10.0% | 28 |
| RY-T | Royal Bank of Canada | 3.8% | $138.79 | 8.4% | $5.28 | 6.5% | 12 |
| SJ-T | Stella-Jones Inc. | 1.7% | $47.95 | -3.3% | $0.80 | 0.0% | 18 |
| STN-T | Stantec Inc. | 1.0% | $71.90 | 10.1% | $0.72 | 2.1% | 11 |
| TD-T | TD Bank | 4.1% | $92.87 | 5.9% | $3.84 | 7.9% | 12 |
| TFII-N | TFI International | 1.1% | $125.93 | 25.8% | $1.40 | 29.6% | 12 |
| TIH-T | Toromont Industries | 1.5% | $112.50 | 15.1% | $1.68 | 10.5% | 33 |
| TRP-T | TC Energy Corp. | 6.5% | $56.84 | 6.6% | $3.69 | 3.4% | 22 |
| T-T | Telus | 5.1% | $27.79 | 5.6% | $1.40 | 5.4% | 19 |
| WCN-N | Waste Connections | 0.7% | $136.11 | 3.3% | $1.02 | 7.9% | 13 |
| Averages | 3.1% | 5.4% | 5.6% | 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 currency of the dividend and share price 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 would need to 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.
Last week, ‘The List’ was up with a +5.4% YTD price return (capital). Dividend growth of ‘The List’ increased to +5.6% YTD, demonstrating the rise in income over the last year.
The best performers last week on ‘The List’ were Canadian Tire (CTC-A-T), up +9.02%; Algonquin Power & Utilities (AQN-N), up +5.38%; and Alimentation Couche-Tard Inc. (ATD-T), up +4.84%.
Enbridge Inc. (ENB-T) was the worst performer last week, down -3.27%.
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
Last week, there were two dividend increases from companies on ‘The List’.
TC Energy (TRP-T) on Tuesday, February 14, 2023, said it increased its 2023 quarterly dividend from $0.90 to $0.93 per share, payable April 28, 2023, to shareholders of record on March 31, 2023.
This represents a dividend increase of +3.3%, marking the 23rd straight year of dividend growth for this quality pipeline and operator of power generation assets.
Toromont Industries (TIH-T) on Tuesday, February 14, 2023, said it increased its 2023 quarterly dividend from $0.39 to $0.43 per share, payable April 04, 2023, to shareholders of record on March 9, 2023.
This represents a dividend increase of +10.3%, marking the 34th straight year of dividend growth for this quality industrial equipment company.
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. Q4 2022 has now ended, and companies are now beginning to report.
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.
Four companies on ‘The List’ are due to report earnings this week.
Stantec (STN-T) will release its fourth-quarter 2022 results on Wednesday, February 22, 2023, after markets close.
CCL Industries (CCL-B-T) will release its fourth-quarter 2022 results on Wednesday, February 22, 2023, after markets close.
Loblaws (L-T) will release its fourth-quarter 2022 results on Thursday, February 23, 2023, before markets open.
Emera Inc. (EMA-T) will release its fourth-quarter 2022 results on Thursday, February 23, 2023, before markets open.
Last week, four companies on ‘The List’, reported their earnings.
We are now seventy percent of the way through earnings season, with four more companies on ‘The List’ reporting last week. For the most part, earnings have been good compared to estimates. All four companies that reported beat estimates, with (TIH-T) and (CTC-A-T) doing so quite handily.
TC Energy (TRP-T) released its fourth-quarter 2022 results on Tuesday, February 14, 2023, before markets opened.
“2022 has been a record setting year with continued demand and strong utilization across our systems, which is highlighted by TC Energy’s comparable earnings per common share of $4.30 and comparable EBITDA1 of $9.9 billion.” Poirier continued, “Our business remains resilient and is expected to deliver strong comparable EBITDA growth in 2023. We have a defined funding plan in place that will allow us to continue to progress our industry leading capital program and accelerate our deleveraging target.”
– President and Chief Executive Officer, François Poirier
Highlights:
- Reaffirmed 2023 financial outlook with comparable EBITDA expected to be five to seven per cent higher than 2022, while comparable earnings per common share is expected to be modestly higher than 2022
- Capital spending in 2023 is expected to be approximately $11.5 to $12.0 billion which we anticipate will be funded through a combination of internally generated cash flow, incremental long-term debt and hybrid capacity and through our asset divestiture program
- Majority of the 2023 capital program is focused on NGTL System expansions, advancement of the Southeast Gateway Pipeline and the Coastal GasLink pipeline project, U.S. Natural Gas Pipelines projects, the Bruce Power life extension program and normal course maintenance capital expenditures
- Fourth quarter 2022 results were underpinned by strong utilization across our assets, reflecting the continued high demand for our services
- On December 19, 2022, NGTL System set a new record for delivery of 16.4 Bcf
- On December 23, 2022, U.S. Natural Gas Pipelines experienced an all-time peak delivery record of 36.6 Bcf
- Bruce Power achieved 87 per cent availability and the Unit 4 planned outage was completed approximately 22 days ahead of schedule
- Power and Energy Solutions had high power plant availability during the coldest days in December when the average of Alberta power prices reached approximately $312/MWh
Financial results: Fourth quarter 2022
- Net losses attributable to common shares of $1.4 billion or $1.42 per common share, compared to net income of $1.1 billion or $1.14 per common share in 2021
- Segmented losses of $1.0 billion compared to segmented earnings of $1.9 billion in 2021 and comparable EBITDA of $2.7 billion compared to $2.4 billion in 2021
Financial results: year ended December 31, 2022
- Net income attributable to common shares of $0.6 billion or $0.64 per common share, compared to net income of $1.8 billion or $1.87 per common share in 2021
- Segmented earnings of $3.6 billion compared to $4.1 billion in 2021 and comparable EBITDA of $9.9 billion compared to $9.4 billion in 2021
- TC Energy’s Board of Directors approved a 3.3 per cent increase in the quarterly common share dividend to $0.93 per common share for the quarter ending March 31, 2023
- Dividend Reinvestment and Share Repurchase Plan (DRP) participation rate amongst common shareholders was approximately 33 per cent, resulting in $607 million reinvested in common equity from the dividends declared in 2022
- Sanctioned $8.8 billion of projects and placed $5.8 billion of projects in service in 2022, and expect to place approximately $6 billion of new projects in service in 2023
- Continued to advance industry leading $34 billion secured capital program, with various projects helping advance GHG emissions reduction goals
- Placed the Alberta XPress project in service in January 2023 and approved a 63 km (39 mile), 1.4 Bcf/d extension of the Gillis Access project in February 2023 to further connect supplies from the Haynesville basin at Gillis
- Executed main land acquisition agreements required for land falls and compressor stations in Veracruz and Tabasco for the Southeast Gateway Pipeline project, supporting our commitment and execution of the first critical path milestones
- Announced updated cost estimates to the Coastal GasLink pipeline project on February 1, 2023. TC Energy’s project cost estimate has increased to $14.5 billion.
Outlook:
We expect our 2023 comparable EBITDA to be higher than 2022 and our 2023 comparable earnings per common share are expected to be modestly higher than 2022 due to the net impact of the following:
- growth in the NGTL System from advancement of expansion programs
- higher contributions from our Mexico Natural Gas Pipelines segment primarily related to the new Transportadora de Gas Natural de la Huasteca (TGNH) Transport Service Agreement (TSA) with the CFE
- full-year impact from assets placed in service in 2022 and new projects anticipated to be placed in service in 2023, net of incremental depreciation expense
- lower contributions from the Keystone Pipeline System including liquids marketing, primarily as a result of the de-rate associated with the Milepost 14 incident and continuing lower margins
- higher Interest expense as a result of long-term debt issuances, net of maturities and higher floating interest rates
- higher AFUDC related to the Southeast Gateway Pipeline.
We continue to monitor developments in energy markets, our construction projects, regulatory proceedings and our asset divestiture program for any potential impacts on the above outlook.
See the full Earnings Release here
Toromont Industries (TIH-T) released its fourth-quarter 2022 results on Tuesday, February 14, 2023, after markets closed.
“Our team delivered solid operating and financial performance in the fourth quarter and throughout the year, ending in a strong position. We continue to monitor supply and other uncertain market and economic variables. The Equipment Group continued to execute well delivering strong rental and product support results while optimizing equipment and parts sales. Supply chain challenges persisted, albeit some product lines have shown recent improvement. CIMCO revenue improved in the quarter on project construction and higher product support activity. Across the organization, we remain committed to our operating disciplines, driving our after-market strategies and delivering customer solutions.”
– Scott J. Medhurst, President and Chief Executive Officer
Highlights:
- Revenue increased $194.1 million or 20% in the fourth quarter compared to the similar period last year. Equipment Group revenue was up 22% and CIMCO revenue was up 7% compared to prior year, however both groups continue to experience delays in equipment deliveries and project construction due to supply chain constraints in the quarter. Product support revenue was 19% higher on increased demand in both Groups, while rental revenue grew 10% on a larger fleet and higher activity levels.
- Revenue increased $344.2 million (9%) to $4.2 billion for the year. Equipment Group revenue increased 10% while CIMCO revenue was down 3% on a tough comparable last year. Rental revenue was up 17% and exceeded levels in 2019 (pre-pandemic). Product support revenues were up 16%, with growth in both groups, reflecting continuing activity in end markets and the company’s growth strategies in this important market.
- In the fourth quarter of 2022, a property was sold resulting in a pre-tax gain of $17.7 million ($15.4 million after-tax). This facility was previously a Battlefield branch, acquired in the 2017 QM acquisition. The disposition was part of the rental integration and operation excellence footprint strategy.
- Operating income increased 43% in the quarter reflecting the higher revenue, the gain on property disposal, and lower expenses. Operating income as a percentage of sales increased to 18.5% (16.9% excluding the property gain) from 15.6% in the prior year.
- Operating income increased 31% in the year, and was 14.8% of revenue compared to 12.2% in the similar period last year, reflecting the continued favourable sales mix, improved gross margin and lower expense ratio (including the property dispositions).
- Net earnings increased $54.3 million or 51% in the quarter versus a year ago to $159.9 million or $1.94 EPS (basic) and $1.93 EPS (fully diluted).
- For the year, net earnings increased $121.5 million or 37% to $454.2 million, or $5.52 EPS (basic) and $5.47 EPS (fully diluted).
- Bookings decreased 33% in the quarter compared to the similar period and were down 27% on a full year basis. Equipment Group bookings were lower in both periods against a tough comparable last year with significant construction and mining orders received based on market conditions at that time. CIMCO had good booking activity in the year, up 10%.
- Backlog remained relatively unchanged from this time last year at $1.3 billion, reflecting strong order activity over the past year coupled with selective equipment inflow, however ongoing supply constraints still persist.
Outlook:
- Expecting the business environment to gradually improve with persistent challenges, key factors monitored:
- Dynamics of the supply chain
- Inflationary & macro-economic developments
- Customer credit risk in light of elevated interest rates
- Status of the pandemic
- Our focus areas:
- Continue to protect our employees
- Serve and support our customer requirements
- Protect and build our business for the future (leveraging the learnings & managing risks)
- Backlogs remain well positioned, but deliveries subject to availability of certain models & economic conditions
- Technician hiring is a key priority, we’ve made progress in 2022 and it remains essential to support the growing demand for our product support and evolving customer requirements
- Financially, we are well positioned with ample liquidity and our disciplined culture and track record of investing in organic growth initiatives and complementary opportunities
See the full Earnings Release here
Waste Connections (WCN-N) released its fourth-quarter 2022 results on Wednesday, February 15, 2023, after markets closed.
“Q4 topped off an extraordinary year for Waste Connections, highlighted by continuing outperformance during the period and providing a higher entry point and enhanced visibility for 2023. Strong operational execution and over 10% solid waste pricing, along with acquisitions closed during the period, once again provided for better than expected results,” chief executive Worthing Jackman said in a release.
– Worthing Jackman, Chief Executive Officer
Highlights:
Fourth Quarter Highlights
- Price-led organic growth and acquisition activity drive Q4 results above expectations and provide higher entry point into 2023
- Revenue of $1.869 billion, net income(a) of $194.4 million, and adjusted EBITDA(b) of $563.6 million, or 30.2% of revenue, above expectations
- Net income and adjusted net income(b) of $0.75 and $0.89 per share, respectively
Full Year 2022 Highlights
- Revenue of $7.212 billion, up 17.2%
- Net income of $835.7 million, or $3.24 per share, and adjusted net income(b) of $985.3 million, or $3.82 per share, up 18.3%
- Adjusted EBITDA(b) of $2.221 billion, up 15.7%, and 30.8% of revenue, up 10 basis points year over year, excluding acquisitions
- Net cash provided by operating activities of $2.022 billion, up 19.1%, and adjusted free cash flow(b) of $1.165 billion, up 15.4%
- Completes acquisitions with approximately $640 million of total annualized revenue in 2022
Outlook:
- Strong pricing and acquisition growth to drive both double-digit percentage increase in revenue, and adjusted EBITDA* margin expansion
- Revenue of approximately $8.05 billion, up 11.6%
- Net income of approximately $961 million and adjusted EBITDA(b) of approximately $2.50 billion, or about 31.1% of revenue
- Additional acquisitions, increases in recycled commodities and renewable fuels values, or reduction of inflationary pressures to provide upside to 2023 outlook
See the full Earnings Release here
Canadian Tire (CTC-A-T) released its fourth-quarter 2022 results on Thursday, February 16, 2023, before markets opened.
“Our record fourth-quarter EPS performance was a great finish to a remarkable centennial year. These results, combined with a strong retail topline over the year, demonstrate we managed well through a dynamic economic environment,” said Greg Hicks, President and CEO, Canadian Tire Corporation. “Our Triangle Membership delivered outsized growth over the year and continues to provide us with the rich first party data needed to offer personalized experiences and ultimately drive spend.”
– Greg Hicks, President and Chief Executive Officer
Highlights:
Fourth Quarter highlights
- Consolidated retail sales were up 1.2% compared to the fourth quarter of 2021, and up 17.6% on a three-year stacked basis; consolidated comparable sales were in line with 2021’s exceptional performance, and up 21.1% on a three-year stacked basis
- Canadian Tire Retail comparable sales were in line with 2021, when comparable sales were up 9.8%; Automotive continued to deliver the strongest growth in the fourth quarter
- Mark’s had its tenth consecutive quarter of comparable sales growth, up 4.3%, driven by strength in footwear categories
- Licensed apparel sales partly offset declines in categories such as outerwear at SportChek, which ended the quarter down 1.7%
- Helly Hansen was a strong contributor to retail revenue growth in the quarter, up 20.6%, led by increased sales of sportswear through its North American channels
- Q4 Diluted Earnings Per Share was a record $9.09, up 9% compared to Q4 2021; normalized diluted EPS was up 11% to $9.34, driven mainly by higher revenue in both Retail and Financial Services, and a higher Retail gross margin rate
- Retail segment income before income taxes (IBT) was $642.4 million, up from $638.1 million in Q4 2021, driven by an increase in retail revenue of 3.3%, or 2.3% excluding Petroleum, and retail gross margin dollars up 3.5%; retail gross margin rate (excluding Petroleum) was up 40 basis points
- Financial Services delivered strong quarterly IBT, up 37.5% to $86.8 million, with higher revenue, up 14.3%, and lower operating expense
Outlook:
“In 2023, we will continue to focus on delivering value to our customers through the unique capabilities of our Owned Brands, multi-category assortment, and Triangle Rewards,” said Hicks. “With these assets and the resilience of our brand, people and Better Connected strategy, we are better positioned than ever to compete and win.”
See the full Earnings Release here
