Last updated by BM on June 13, 2022
“Stocks like any other investment only have value because of their ability to return cash to their owners. Would you purchase an apartment building if the tenants did not pay rent!” Tom Connolly
Investing in real estate is an excellent parallel to dividend growth investing. As an investor in rental units, your building becomes more valuable as your rental income rises.
We publish the decade-long returns of dividends and price every year to demonstrate that as our income grows so does our capital.
Here is the data from January 2012 to January 2022.
Notice the 10YR Averages of the compound annual dividend growth rate (CAGR 10Y DG) and compound annual price growth (CAGR 10Y PG) of ‘The List’ in this spreadsheet. The evidence is hard to refute…as the dividend grows, the price grows at about the same rate.
Getting the dividend growth right tilts the deck in our favour and increases the probability of an above-average total return (CAGR 10Y TR).
Performance of ‘The List’
Last week, ‘The List’ was down with a minus -3.4% YTD price return (capital). Dividend growth of ‘The List’ remains at 10.2% YTD, demonstrating the rise in income over the last year.
The best performers last week on ‘The List’ were Franco Nevada (FNV-N), up 2.2%; Dollarama Inc. (DOL-T), up 1.9%; and Canadian Utilities Limited (CU-T), at 0.0%.
Enghouse Systems Ltd. (ENGH-T) was the worst performer last week, down -26.3%. More on (ENGH-T) in the sections below.
Recent News
Alimentation Couche-Tard (ATD-T) Hiring More Than 25,000 Team Members Across Global Network (Source: PR Newswire)
“LAVAL, QC, June 8, 2022 /CNW Telbec/ – With the start of summer, Alimentation Couche-Tard Inc. (“Couche-Tard”), a global leader in convenience and mobility, is hiring for more than 25,000 positions at its more than 14,100 Circle K and Couche-Tard convenience stores and support centers across North America, Europe and Asia.”
“Passionate, diverse and talented team members are key to ensuring a great store and fueling experience for our customers and making their lives a little easier every day, which is why we are ramping up our hiring efforts as we head into the summer travel season,” said Ina Strand, Chief People Officer for Couche-Tard. “Whether applicants are looking for seasonal employment or an exciting career with a dynamic global retailer, we provide the resources and ‘One Team’ culture to help them find growth and fulfillment and a global brand with an array of programs that create award-winning engagement among our team members.”
(ATD-T) is one of the few companies hiring in an economy that is slowing. We believe this combined with their recent dividend increase (25%), shows us that management is confident in the future. A pullback in price last week has us watching closely.
U.S. inflation hit a new 40-year high of 8.6% in May (Source: Globe & Mail)
“The prices of gas, food and most other goods and services jumped in May, raising inflation to a new four-decade high and giving American households no respite from rising costs.”
“Virtually every sector has higher-than-normal inflation,” said Ethan Harris, head of global economic research at Bank of America. “It’s made its way into every nook and cranny of the economy. That’s the thing that makes it concerning because it means it’s likely to persist.”
The article says that central banks face a tricky balancing act. They need to cool down inflation and the economy with interest rate hikes but not so much that they create a recession.
Patience is critical as the Q2 earnings season is only a month away. In our weekly MP Market Review summaries, we have been regularly tracking the rise of inflation and its effects on the companies we follow. These effects will begin to show up in earnings estimates and then in stock prices.
There are no companies on ‘The List’ due to report earnings this week.
Dividend Increases
Last week, there were no dividend increases from companies on ‘The List.’
Earnings Releases
Last week, there were two earnings releases from companies on ‘The List.’
Dollarama Inc. (DOL-T)
“With the lifting of COVID-19 restrictions across Canada early in the quarter, we were pleased to see a double-digit increase in customer traffic, coupled with strong demand for our affordable, everyday consumables and seasonal goods. Our strong performance across key metrics in the first quarter reflects the relevance of our business model and positive consumer response to our value proposition in a high-inflation environment,” said Neil Rossy, President and CEO. “Mindful of the challenging environment in which we are operating, we will continue to rely on the levers at our disposal to mitigate ongoing supply chain and cost pressures, while providing consumers with the best relative value on the market,” he added.
Highlights:
Fiscal 2023 First Quarter Results Highlights Compared to Fiscal 2022 First Quarter Results
- Sales increased by 12.4% to $1,072.9 million
- Comparable store sales grew 7.3%
- EBITDA increased by 20.9% to $300.0 million, or 28.0% of sales, compared to 26.0% of sales
- Operating income increased by 24.4% to $220.0 million, or 20.5% of sales, compared to 18.5% of sales
- Diluted net earnings per share increased by 32.4% to $0.49, compared to $0.37
- 10 net new stores opened, compared to 12 net new stores
- 1,444,803 common shares repurchased for cancellation for $107.3 million
Outlook:
In what is expected to remain a complex environment, Dollarama is well-positioned to pursue its profitable growth and to deliver on its purpose. The Corporation is committed to providing Canadians from all walks of life with compelling value on every dollar they spend, and with proximity and convenient access to a broad range of affordable, everyday items.
In the first half of Fiscal 2023, the Corporation expects to benefit from a favourable sales environment compared to the same period last year, at which time various COVID-19 restrictions impacting retailers and consumer shopping patterns were in place. Supply chain and other inflationary pressures are expected to be felt more in Fiscal 2023. The Corporation has levers at its disposal to mitigate some of the cost pressures on its gross margin. SG&A, excluding any incremental COVID-related costs, is expected to benefit from positive scaling and improved labour productivity. The Corporation will maintain its balanced approach to capital allocation in support of organic growth as well as for maintenance and transformational initiatives. It will also continue to return capital and generate value for shareholders, prioritizing the repurchase of shares under its normal course issuer bid.
Based on the above, the Corporation expects the following for Fiscal 2023:
To open 60 to 70 net new stores
- Gross margin as a percentage of sales to be in the range of 42.9% to 43.9%
- SG&A as a percentage of sales to be in the range of 13.8% to 14.3%
- To deploy $160 million to $170 million in capital expenditures
- To actively repurchase shares under its normal course issuer bid
Dollarama Inc.’s share price continues to soar to new heights. Their recent earnings report will do nothing to change this. Companies like (DOL-T) not only have brand power they also have pricing power. These are the companies that do well in an inflationary environment. If you recall an earlier article this year in the Globe & Mail (March 30), they announced a hike in their highest price items from $4 to $5. They also continue to open more stores and are excelling at managing supply chain issues. They are on track to meet the guidance communicated coming into this year. The only cautionary signal we could find is that their Fiscal 2023 Q1 comparables were very good because sales suffered from lockdowns in Fiscal Q1 2022. Although they have a terrific business model, the valuation is a little too frothy for us at the moment.
Enghouse Systems Limited (ENGH-T)
“Excluding the impact of foreign exchange, our Asset Management Group had comparable revenues to the second quarter of 2021. Our Interactive Management Group is experiencing increased competition from cloud solutions providers as the market shifts towards the cloud as more businesses adopt work from home operating models,” the company said in a release.
Highlights:
The software and services company said it earned C$17.87 million, or C$0.32 per share, in the quarter ended April 30, down from C$20.74 million, or C$0.37. Revenue fell 9.4% to C$106.31 million.
Financial and operational highlights for the three and six months ended April 30, 2022 compared to the three and six months ended April 30, 2021 are as follows:
- Revenue achieved was $106.3 and $217.4 million, respectively, compared to revenue of $117.3 and $236.4 million;
- Results from operating activities was $31.1 and $66.8 million, respectively, compared to $36.9 and $77.6 million;
- Net income was $17.9 and $39.5 million, respectively, compared to $20.7 and $41.4 million;
- Adjusted EBITDA was $33.8 and $72.3 million, respectively, compared to $40.2 and $84.7 million;
- Cash flows from operating activities excluding changes in working capital was $34.5 and $73.3 million, respectively, compared to $42.6 and $84.3 million.
We took the opportunity to join Enghouse’s Q2 2022 Conference Call to learn more about the quarterly reduction in earnings and their strategy going forward. As expected, the company is confident it can turn things around. Weaker earnings comparisons came from a better than average 2021, unfavourable foreign exchange costs in Europe and a shortfall in their shift to cloud computing solutions which lagged the market.
(ENGH-T) is addressing the cloud computing shortfall in their product mix and expects this to help with earnings. Another critical bit of information we gleaned from the conference call dealt with their acquisition strategy. Enghouse is a company that has traditionally grown its earnings by acquiring companies and integrating them efficiently. There have been no acquisitions in the past year. Management believes the opportunity to purchase attractively valued tech companies is much closer now with the pullback in valuations, and their decision to wait was a good one. They have recently added to their acquisition team to take advantage of these opportunities.
(ENGH-T) A classic example of a smaller cap dividend growth company getting punished by the market when they miss earnings in a bear market. We learned this lesson from our first ten years of dividend growth investing. It was ‘Lesson #1’!
Below is a snapshot of ‘The List’ from last Friday’s close. Please click on The List menu item for a sortable version.
‘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 June 10, 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 | 5.0% | $14.18 | -1.2% | $0.70 | 5.4% | 11 |
| ATD-T | Alimentation Couche-Tard Inc. | 0.8% | $54.70 | 5.0% | $0.44 | 18.1% | 12 |
| BCE-T | Bell Canada | 5.4% | $67.11 | 1.8% | $3.64 | 4.0% | 13 |
| BIP-N | Brookfield Infrastructure Partners | 3.6% | $60.30 | -1.3% | $2.16 | 5.9% | 14 |
| CCL-B-T | CCL Industries | 1.6% | $59.29 | -12.5% | $0.96 | 14.3% | 20 |
| CNR-T | Canadian National Railway | 2.1% | $140.46 | -9.3% | $2.93 | 19.1% | 26 |
| CTC-A-T | Canadian Tire | 3.5% | $166.72 | -9.0% | $5.85 | 24.5% | 11 |
| CU-T | Canadian Utilities Limited | 4.5% | $39.65 | 8.3% | $1.78 | 1.0% | 50 |
| DOL-T | Dollarama Inc. | 0.3% | $71.43 | 12.6% | $0.22 | 9.2% | 11 |
| EMA-T | Emera | 4.3% | $62.17 | -0.7% | $2.65 | 2.9% | 15 |
| ENB-T | Enbridge Inc. | 5.9% | $58.18 | 17.4% | $3.44 | 3.0% | 26 |
| ENGH-T | Enghouse Systems Limited | 2.9% | $24.84 | -45.8% | $0.72 | 16.3% | 15 |
| FNV-N | Franco Nevada | 0.9% | $146.80 | 7.9% | $1.28 | 10.3% | 14 |
| FTS-T | Fortis | 3.4% | $62.35 | 3.1% | $2.14 | 2.9% | 48 |
| IFC-T | Intact Financial | 2.2% | $181.08 | 10.6% | $4.00 | 17.6% | 17 |
| L-T | Loblaws | 1.3% | $114.93 | 11.9% | $1.54 | 12.4% | 10 |
| MGA-N | Magna | 2.9% | $61.33 | -24.8% | $1.80 | 4.7% | 12 |
| MRU-T | Metro | 1.6% | $69.12 | 3.1% | $1.10 | 12.2% | 27 |
| RY-T | Royal Bank of Canada | 3.9% | $128.55 | -6.1% | $4.96 | 14.8% | 11 |
| SJ-T | Stella-Jones Inc. | 2.3% | $34.89 | -14.2% | $0.80 | 11.1% | 17 |
| STN-T | Stantec Inc. | 1.3% | $56.30 | -19.8% | $0.71 | 6.8% | 10 |
| TD-T | TD Bank | 3.9% | $91.62 | -7.8% | $3.56 | 12.7% | 11 |
| TFII-N | TFI International | 1.4% | $77.04 | -30.4% | $1.08 | 12.5% | 11 |
| TIH-T | Toromont Industries | 1.4% | $106.35 | -6.5% | $1.52 | 15.2% | 32 |
| TRP-T | TC Energy Corp. | 4.9% | $72.62 | 21.6% | $3.57 | 4.4% | 21 |
| T-T | Telus | 4.4% | $30.36 | 2.0% | $1.33 | 6.2% | 18 |
| WCN-N | Waste Connections | 0.7% | $123.55 | -7.8% | $0.92 | 8.9% | 12 |
| Averages | 2.8% | -3.4% | 10.2% | 18 |
