Last updated by BM on June 24, 2024
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’.
- Unlocking Wealth: The 7% in 10 Years Dividend Growth Test in this week’s newsletter.
- Last week, dividend growth of ‘The List’ stayed the course and has increased by +8.8% YTD (income).
- Last week, price return of ‘The List’ was down with a return of +2.5% YTD (capital).
- Last week, there were no dividend announcements from companies on ‘The List’.
- Last week, there were no earnings reports from companies on ‘The List’.
- This week, one company on ‘The List’ is due to report earnings.
DGI Clipboard
“Dividend growth is the hidden magic in plain sight. We hold because after ten years, our yield is at least 5%, on average 7% and often about 10%.”
-Tom Connolly
Unlocking Wealth: The 7% in 10 Years Dividend Growth Test
Our strategy and the safety of our capital hinges on the growing income generated by a select group of quality companies. While stock prices may vary, our overall income consistently increases. The downside is the need for patience for this growth. What are we waiting for? The dividend, the income, the yield.
Our strategy and our safety depends upon the growing income from a few leading companies, not the market, not a fund, nor over-diversification.
A quick test I like to perform is our “7% in 10 Years” test. This test helps identify dividend growth stocks that are attractive investments today. If your income stream (without reinvesting dividends) is projected to grow to a yield of 7% in ten years, then it has the potential to be a good investment opportunity.
In monetary terms, if you invest $10,000 today, you can expect to receive $700 annually from dividends alone within ten years. How does an investment bought today generate a 7% return on dividends alone ten years from now? The answer is that the dividend grows!
One reason I use 7% as my numerical goal is that equities have historically provided around 7% returns over the last 100 years. Generating a return within a decade equal to the stock market’s historical total return from the dividend alone demonstrates the magic of dividend growth investing.
Another advantage of using at least a decade as your investment horizon is that the distance between your purchase and current prices is typically significant.
Let’s look at an example of growing yield and its effect on price using a company on ‘The List’:
An investment in CCL Industries Inc. on January 1, 2014, would now generate a ‘growth yield’ of 7.39%. An investor would outperform most indexes and dividend fund managers on dividends alone from this quality dividend grower in less than a decade. Imagine the growth yield in another ten years!
How did the price react to this growing yield?
Not bad as well. The price went up four and a half times!
Formulas for calculating historical and estimated growth yield:
- Historical Growth Yield Calculation: (Current Dividend / Price on Jan. 1, 2014)
- Estimated Forward Growth: (Current Yield * 5YR average annual dividend growth rate ^ Period (10 years)
Not all companies on ‘The List’ will generate a 7% dividend return in ten years, but assembling a portfolio with growth yield in mind is a conservative way to win with dividend growth investing. This simple test helps screen for quality dividend growth companies.
DGI Scorecard
The List (2024)
The Magic Pants 2024 list includes 28 Canadian dividend growth stocks. Here are the criteria to be considered a candidate on ‘The List’:
- Dividend growth streak: 10 years or more.
- Market cap: Minimum one billion dollars.
- Diversification: Limit of five companies per sector, preferably two per industry.
- Cyclicality: Exclude REITs and pure-play energy companies due to high cyclicality.
Based on these criteria, companies are added or removed from ‘The List’ annually on January 1. Prices and dividends are updated weekly.
While ‘The List’ is not a standalone portfolio, it functions admirably as an initial guide for those seeking to broaden their investment portfolio and attain superior returns in the Canadian stock market. Our newsletter provides readers with a comprehensive insight into the implementation and advantages of our Canadian dividend growth investing strategy. This evidence-based, unbiased approach empowers DIY investors to outperform both actively managed dividend funds and passively managed indexes and dividend ETFs over longer-term horizons.
For those interested in something more, please upgrade to a paid subscriber; you get the enhanced weekly newsletter, access to premium content, full privileges on the new Substack website magicpants.substack.com and DGI alerts whenever we make stock transactions in our model portfolio.
Performance of ‘The List’
Last week, dividend growth of ‘The List’ stayed the course and has now increased by +8.8% YTD (income).
Last week, price return of ‘The List’ was down with a return of +2.5% YTD (capital).
Even though prices may fluctuate, the dependable growth in our income does not. Stay the course. You will be happy you did.
Last week’s best performers on ‘The List’ were Waste Connections (WCN-N), up +3.56%; Alimentation Couche-Tard Inc. (ATD-T), up +2.83%; and Manulife Financial (MFC-T), up +1.94%.
Canadian National Railway (CNR-T) was the worst performer last week, down -4.29%.
| SYMBOL | COMPANY | YLD | PRICE | YTD % | DIV | YTD % | STREAK |
|---|---|---|---|---|---|---|---|
| ATD-T | Alimentation Couche-Tard Inc. | 0.9% | $78.05 | 1.7% | $0.70 | 17.4% | 14 |
| BCE-T | Bell Canada | 8.9% | $44.65 | -17.6% | $3.99 | 3.1% | 15 |
| BIP-N | Brookfield Infrastructure Partners | 6.0% | $26.95 | -12.2% | $1.62 | 5.9% | 16 |
| CCL-B-T | CCL Industries Inc. | 1.6% | $71.04 | 22.8% | $1.16 | 9.4% | 22 |
| CNR-T | Canadian National Railway | 2.1% | $160.11 | -4.1% | $3.38 | 7.0% | 28 |
| CTC-A-T | Canadian Tire | 5.1% | $136.25 | -1.7% | $7.00 | 1.4% | 13 |
| CU-T | Canadian Utilities Limited | 6.2% | $29.29 | -8.8% | $1.81 | 0.9% | 52 |
| DOL-T | Dollarama Inc. | 0.3% | $124.03 | 30.5% | $0.35 | 29.5% | 13 |
| EMA-T | Emera | 6.4% | $44.68 | -12.0% | $2.87 | 3.0% | 17 |
| ENB-T | Enbridge Inc. | 7.7% | $47.50 | -1.9% | $3.66 | 3.1% | 28 |
| ENGH-T | Enghouse Systems Limited | 3.4% | $29.73 | -12.5% | $1.00 | 18.3% | 17 |
| FNV-N | Franco Nevada | 1.2% | $116.72 | 6.0% | $1.44 | 5.9% | 16 |
| FTS-T | Fortis Inc. | 4.5% | $52.70 | -3.9% | $2.36 | 3.3% | 50 |
| IFC-T | Intact Financial | 2.2% | $223.03 | 9.7% | $4.84 | 10.0% | 19 |
| L-T | Loblaw Companies Limited | 1.2% | $154.24 | 20.0% | $1.92 | 10.0% | 12 |
| MFC-T | Manulife Financial | 4.5% | $35.17 | 21.8% | $1.60 | 9.6% | 10 |
| MGA-N | Magna | 4.5% | $42.22 | -23.9% | $1.90 | 3.3% | 14 |
| MRU-T | Metro Inc. | 1.8% | $74.07 | 8.1% | $1.34 | 10.7% | 29 |
| RY-T | Royal Bank of Canada | 4.0% | $142.03 | 6.8% | $5.72 | 7.1% | 13 |
| SJ-T | Stella-Jones Inc. | 1.3% | $85.96 | 12.2% | $1.12 | 21.7% | 19 |
| STN-T | Stantec Inc. | 0.7% | $111.83 | 6.9% | $0.83 | 7.8% | 12 |
| T-T | Telus | 7.1% | $21.59 | -9.0% | $1.53 | 7.1% | 20 |
| TD-T | TD Bank | 5.5% | $73.96 | -12.7% | $4.08 | 6.3% | 13 |
| TFII-N | TFI International | 1.2% | $136.84 | 4.3% | $1.60 | 10.3% | 13 |
| TIH-T | Toromont Industries | 1.6% | $118.01 | 4.6% | $1.92 | 11.6% | 34 |
| TRI-N | Thomson Reuters | 1.3% | $165.22 | 15.3% | $2.16 | 10.2% | 30 |
| TRP-T | TC Energy Corp. | 7.3% | $52.71 | 0.8% | $3.84 | 3.2% | 23 |
| WCN-N | Waste Connections | 0.7% | $174.61 | 17.9% | $1.14 | 8.6% | 14 |
| Averages | 3.5% | 2.5% | 8.8% | 21 |
Note: Stocks ending in “-N” declare earnings and dividends in US dollars. To achieve currency consistency between dividends and share price for these stocks, we have shown dividends in US dollars and share price in US dollars (these stocks are listed on a US exchange). The dividends for their Canadian counterparts (-T) would be converted into CDN dollars and would fluctuate with the exchange rate.
Check us out on magicpants.substack.com for more info in this week’s issue….
