Last updated by BM on March 14, 2022
“If I can buy streams of cash flows at lower prices, I am happy.” Buttonwood, March 20, 2020
Dividend growth for the companies on ‘The List’ stands at 9.1% so far in 2022. Imagine getting a salary raise every year of over nine percent!
If you are new to dividend growth investing this is perhaps the most ‘magical’ concept. We still have the same number of shares in our accounts even after the dividends are paid. We are fine waiting on our existing shares to appreciate and excited about adding more at lower prices.
For the most part, the narratives in the news continue to be about the Russia-Ukraine war and the sanctions being imposed. More companies came out this week and severed ties or have temporarily shut down their Russian operations. As we mentioned last week, this was more of a buying opportunity for some of these companies than a significant adjustment to their future earnings as the companies on our list had such a small portion of their revenue’s dependent on Russian operations. We still believe there is more downside than upside in the market but will enter incrementally into individual positions when they reach our valuation corridor.
Performance of ‘The List’
‘The List’ was up slightly this week with a 0.6% YTD price return (capital) with an uptick in dividend growth for an average increase of 9.1% in dividends (income) so far in fiscal 2022.
The best performers last week on ‘The List’ were Enghouse Systems Limited (ENGH-T) up 12.4%; Loblaws (L-T) up 8.2%; and Toromont Industries (TIH-T) up 4.9%.
TFI International (TFII-T) was the worst performer this week, down -9.9%.
Two companies on ‘The List’ announced a dividend increase coupled with an earnings report for Q4 and Full Year 2021.
Recent News
Along with the last of our two dividend growers reporting 2021 earnings (SJ-T, FNV-N) we had some news from Canadian Tire and Stantec.
Canadian Tire (CTC-A-T) announced plans to invest more than $3.4 billion over the next four years on its online presence. If you recall from their Q4 2021 earnings release, their eCommerce sales were the biggest growth area for the business, and they are looking to build on those gains.
“We have clearly laid out our strategic growth plan, and we firmly believe that investments targeting organic growth in the right places represent the best use of capital,” said Gregory Craig, Executive Vice President & Chief Financial Officer. “Our focus on investing in the business will be coupled with our balanced approach to dividends and share buybacks which positions us to continue to generate attractive returns to shareholders over the longer-term.”
Stantec (ST-T) announces its intention to acquire Barton Willmore, the leading UK-based planning and design consulting firm. This announcement is the most recent in a series of acquisitions by Stantec in the UK market and enhancing their global presence. Companies that seek out and integrate acquisitions quickly and efficiently go on to reach new earnings records.
“Stantec’s cultural values also mirror our own, and through comprehensive inter-disciplinary working, we are looking forward to delivering a unique, integrated, and highly attractive workplace for planners and designers, alongside their broad existing teams,” said Mark Sitch, fellow Senior Partner at Barton Willmore. “We look forward to seeing how these integrated teams can transform project solutions for our clients across the UK and beyond.”
There is one company on ‘The List’ due to report earnings this week:
Alimentation Couche-Tard Inc. (ATD-T) is scheduled to report earnings for their Q3 2022 period before the market opens Wednesday, Mar. 16.
Dividend Increases
There were two companies on ‘The List’ that announced a dividend increase this week. This completes our Q4 2021 earnings season. We will publish a summary of Q4 earnings next week.
Stella Jones (SJ-T) on Thursday increased its 2022 quarterly dividend from $0.18 to $.20 per share, payable April 22, 2022, to shareholders of record on April 4, 2022.
This represents a dividend increase of 11.11% and the 18th consecutive year in which the company has increased its dividend.
Franco Nevada (FNV-N) on Thursday increased its 2022 quarterly dividend from $0.30 to $.32 per share, payable March 31, 2022, to shareholders of record on March 16, 2022.
This represents a dividend increase of 6.67% and the 15th consecutive year in which the company has increased its dividend.
Earnings Releases
We had two earnings reports from companies on ‘The List’ this past week. Let’s start with Stella Jones.
Stella Jones (SJ-T)
“Stella-Jones delivered a record performance on many fronts in 2021, resulting in increased sales, strong EPS growth and solid cashflows. We utilized our collective expertise and longstanding industry relationships to successfully navigate through complex procurement challenges and volatile lumber markets to produce yet another successful year,” said Éric Vachon, President and CEO of Stella-Jones.
2021 Highlights
- Sales of $2,750 million, up 8%
- Record high EBITDA of $400 million, or a margin of 14.5%
- Net income reached $227 million, or $3.49 per share
- Acquired wood treating facilities in Alabama
- Quarterly cash dividend increased 11% to $0.20 per share
- Amends Normal Course Issuer Bid to increase maximum shares to be repurchased
- Company details its three-year financial outlook
Outlook
To better reflect its business dynamics, the Company is shifting its financial guidance to a three-year outlook. Over the next 3 years, Stella-Jones anticipates continued sales and EBITDA growth. It expects to generate an annual sales growth rate in the mid-single digit range from the 2019 pre-pandemic levels and continues to target EBITDA margin of approximately 15% for the 2022-2024 period.
By core product categories for 2022-2024:
- The Company will expand its capital expenditure program and invest an additional $90 to $100 million to support the anticipated high single-digit organic growth in the utility poles category.
- The Company continues to project growth in the railway ties category in the low single-digits; and
- For residential lumber, the Company anticipates stable long-term demand but believes the market price of lumber will normalize. As a result, the Company expects its residential lumber sales to decrease compared to 2021 and assumes sales in the 2022-2024 period will be approximately 35% above the 2019 pre-pandemic levels.
Based on its current business model, the Company projects returning to shareholders approximately $500 to $600 million in the 2022-2024 period.
The Company plans to pursue acquisitions that further support growth in its infrastructure-related products categories. It also plans to evaluate growth opportunities in adjacent businesses where it can leverage its core knowledge and key attributes to generate continued strong cash flow. For strategic acquisitions, the Company anticipates increasing its leverage to finance such opportunities. As per its capital allocation strategy, the Company targets a leverage ratio of 2.0x-2.5x and may temporarily deviate and exceed its target to pursue acquisitions.
We like the fact that Stella Jones is a shareholder-friendly company. Through dividend growth and share buy-backs, they send the message that the shareholder comes first. By switching to a three-year outlook they also seem to be implying that in the near term they are not expecting earnings growth to be significant.
Franco Nevada (FNV-N)
“Franco-Nevada is reporting its best results ever,” stated Paul Brink, CEO. “We achieved record annual top-line and bottom line results. GEO sales growth was driven by an increased contribution from Cobre Panama, outperformance by Antamina, and contributions from new acquisitions. The advantage of our diverse portfolio was again demonstrated in 2021. High iron ore prices during the year boosted revenues from our iron ore holdings and rising energy prices resulted in our energy revenues more than doubling. Following 2021’s rapid GEO growth, we expect slightly lower GEOs in 2022 and then to continue our growth through 2026. With limited exposure to inflation, our top-line growth translated directly into expanded margins and record earnings. Franco-Nevada is debt-free, is growing its cash balances, and has a strong pipeline of growth opportunities.”
Highlights
Strong Financial Position
- No debt and $1.6 billion in available capital as at December 31, 2021
- Generated $279.0 million in operating cash flow for the quarter
- Quarterly dividend increased 6.7% to $0.32/share, effective Q1 2022
Sector-Leading ESG
- Ranked #1 gold company by Sustainalytics, AA by MSCI, and Prime by ISS ESG
- Committed to the World Gold Council’s “Responsible Gold Mining Principles”
- Partnering with our operators on community and ESG initiatives
- Goal of 40% diverse representation at the Board and top leadership levels as a group by 2025
Diverse, Long-Life Portfolio
- Most diverse royalty and streaming portfolio by asset, operator, and country
- Core assets outperforming since time of acquisition
- Long-life reserves and resources
Growth and Optionality
- Acquisitions, mine expansions, and new mines driving long-term growth
- Long-term optionality in gold, copper, and nickel
Guidance
2021 was a year of significant growth for Franco-Nevada, with record revenue and a 27.0% year-over-year increase in total GEOs. In 2022, we anticipate a slightly lower production profile in comparison to 2021, with our attributable GEOs expected to range between 680,000 and 740,000 GEOs. Of this, our Precious Metal assets are expected to contribute between 510,000 and 550,000 GEOs. The outlook reflects an expected lower contribution from our Guadalupe-Palmarejo stream and expected lower grades at Antamina and Antapaccay in 2022. We estimate depletion expense to be between $270 and $300 million. Our remaining capital commitment to the Royalty Acquisition Venture with Continental is $91.6 million. Please see our MD&A for the year ended December 31, 2021, for more details on our guidance and see “Forward-Looking Statements” below.
5-Year Outlook
We expect our portfolio to produce between 765,000 and 825,000 GEOs by 2026, of which 570,000 to 610,000 GEOs are expected to be generated from Precious Metal assets. This outlook assumes that Cobre Panama will have expanded its mill throughput capacity to 100 million tonnes per year during 2023. It also assumes the commencement of production at Salares Norte, Greenstone (Hardrock), Rosemont, Valentine Lake, and Eskay Creek, continued deliveries from Sudbury through 2026, and that the stream at MWS will have reached its cap in 2024.
For both our 2022 guidance and 5-year outlook, when reflecting revenue earned from gold, silver, platinum, palladium, iron ore, oil, and gas commodities to GEOs, we assumed the following prices: $1,800/oz Au, $23.00/oz Ag, $1,000/oz Pt, $2,100/oz Pd, $125/tonne Fe 62% CFR China, $85/bbl WTI oil and $3.75/mcf Henry Hub natural gas. Our 2022 guidance, as set out above, and our 5-year outlook does not assume any other acquisitions and does not reflect any incremental revenue from additional contributions we may make to the Royalty Acquisition Venture with Continental as part of our remaining commitment of $91.6 million. The 2022 guidance and 5-year outlook are based on public forecasts and other disclosure by the third-party owners and operators of our assets and our assessment thereof.
In January of this year, we did a portfolio review on the fundamentals of Franco-Nevada (FNV-N). We saw the stock as in a ‘sensible price’ range based on its historical numbers. In addition, we knew that gold and precious metals typically do better in periods were both the rate of change in GDP and inflation are slowing. To date, our thesis is playing out with FNV-N up over 20%.
In the most recent earnings report we note that production has levelled off (GEO) in the short term and the catalyst for further growth will come from an increase in the price of the commodities Franco Nevada holds streams and royalties on. Any significant uptick in the prices of gold, silver, iron, palladium, platinum, natural gas or oil will reflect favorably on FNV’s bottom line.
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. 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 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 March 11, 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 | 4.5% | $15.08 | 5.1% | $0.68 | 2.3% | 11 |
| ATD-T | Alimentation Couche-Tard Inc. | 0.9% | $48.84 | -6.3% | $0.44 | 18.1% | 12 |
| BCE-T | Bell Canada | 5.2% | $70.35 | 6.7% | $3.68 | 5.1% | 13 |
| BIP-N | Brookfield Infrastructure Partners | 3.6% | $60.74 | -0.6% | $2.16 | 5.9% | 14 |
| CCL-B-T | CCL Industries | 1.7% | $57.78 | -14.8% | $0.96 | 14.3% | 20 |
| CNR-T | Canadian National Railway | 1.8% | $160.98 | 3.9% | $2.93 | 19.1% | 26 |
| CTC-A-T | Canadian Tire | 2.9% | $177.73 | -3.0% | $5.20 | 10.6% | 11 |
| CU-T | Canadian Utilities Limited | 4.8% | $36.70 | 0.2% | $1.78 | 1.0% | 50 |
| DOL-T | Dollarama Inc. | 0.3% | $69.31 | 9.3% | $0.20 | 1.7% | 11 |
| EMA-T | Emera | 4.3% | $61.07 | -2.4% | $2.65 | 2.9% | 15 |
| ENB-T | Enbridge Inc. | 6.1% | $56.66 | 14.4% | $3.44 | 3.0% | 26 |
| ENGH-T | Enghouse Systems Limited | 1.8% | $39.00 | -15.0% | $0.72 | 16.3% | 15 |
| FNV-N | Franco Nevada | 0.8% | $158.05 | 16.1% | $1.28 | 10.3% | 14 |
| FTS-T | Fortis | 3.5% | $60.30 | -0.3% | $2.14 | 4.4% | 48 |
| IFC-T | Intact Financial | 2.2% | $185.72 | 13.4% | $4.00 | 17.6% | 17 |
| L-T | Loblaws | 1.3% | $114.75 | 11.7% | $1.46 | 6.6% | 10 |
| MGA-N | Magna | 3.1% | $58.10 | -28.8% | $1.80 | 4.7% | 12 |
| MRU-T | Metro | 1.5% | $71.74 | 7.0% | $1.10 | 10.0% | 27 |
| RY-T | Royal Bank of Canada | 3.5% | $138.15 | 1.0% | $4.80 | 11.1% | 11 |
| SJ-T | Stella-Jones Inc. | 2.1% | $38.78 | -4.7% | $0.80 | 11.1% | 17 |
| STN-T | Stantec Inc. | 1.1% | $63.25 | -9.9% | $0.71 | 6.8% | 10 |
| TD-T | TD Bank | 3.6% | $98.06 | -1.3% | $3.56 | 12.7% | 11 |
| TFII-T | TFI International | 1.2% | $118.33 | -15.6% | $1.36 | 17.4% | 11 |
| TIH-T | Toromont Industries | 1.3% | $115.78 | 1.8% | $1.52 | 15.2% | 32 |
| TRP-T | TC Energy Corp. | 5.1% | $69.66 | 16.6% | $3.57 | 4.4% | 21 |
| T-T | Telus | 3.9% | $33.33 | 12.0% | $1.31 | 4.4% | 18 |
| WCN-N | Waste Connections | 0.7% | $134.22 | 0.1% | $0.92 | 8.9% | 12 |
| Averages | 2.7% | 0.6% | 9.1% | 18 |
