Last updated by BM on March 27, 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’ was flat with a YTD price return of +2.4% (capital). Dividend growth also remained the same at +7.3% YTD, highlighting growth in income over the past year.
- Last week, there were no dividend increases from companies on ‘The List’.
- Last week, there were no earnings reports from companies on ‘The List’.
- One company on ‘The List’ is 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 about a decade ago and was one of the catalysts 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.
DGI Thoughts
“Experience is the name we give to our mistakes.”
– Oscar Wilde
Reflecting on the current banking liquidity issues reminded me of a lesson I learned early on in my journey as a dividend growth investor. The company was Home Capital Group (HCG-T).
Home Capital Group is a Canadian company that provides mortgage lending, deposits, and consumer credit services. In July 2015, the company suspended 45 mortgage brokers for submitting fraudulent income information on mortgage applications. The value of mortgages at the time from the suspended brokers on Home Capital’s books was estimated to be between $1.5 billion and $2 billion.
In March 2017, the company’s President and CEO, Martin Reid, was fired. This came two weeks after several current and former officers and directors of the company received enforcement notices from the Ontario Securities Commission (OSC). The OSC’s notices were related to the company’s past disclosure practices and, in some cases, trades in its shares.
The OSC’s enforcement action followed a series of events that had put the company under intense scrutiny. In April 2015, the Globe and Mail newspaper published an investigation that alleged that some Home Capital brokers had falsified borrower incomes on mortgage applications. The company initially denied the allegations but later launched an investigation that confirmed the fraud and led to the suspension of the 45 brokers.
The fallout from the fraud scandal had a significant impact on Home Capital’s business. The company’s stock price fell sharply, and it faced a run on deposits as some customers withdrew their money. The company was forced to seek a $2 billion credit line from the Healthcare of Ontario Pension Plan to support its operations.
As an investor, it is important to thoroughly research and understand the risks associated with any investment, especially in the financial sector. This includes evaluating a bank’s financial strength, management quality, and regulatory compliance. Keeping up with news and developments related to the company and the broader industry can also be helpful in identifying potential risks and opportunities.
Thankfully, my position size at the time was small enough so that the impact on my overall portfolio was minimal. Whenever possible, I now only invest in larger capitalized companies with several quality indicators.
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Recent News
How to beat the pros, Part 3: Identifying high-quality stocks (Globe & Mail)
“To reiterate what we said in the last article, stock picking is a subtraction process. We believe that enterprising investors would have a great chance of harvesting long-term alpha by rejecting the temptation of betting on most public companies that are speculative in nature, and, instead, concentrating on only a few high-quality ones on an exceedingly selective basis. We define quality as the predictable ability for a business to generate a superior return on capital over time.”
The author identifies his ‘quality indicators’ as companies with capital-light business models, management with an owner mindset and market leadership.
We have been in agreement with much of what the author has written about in his first two articles, including the quote above. We do, however, have specific ‘quality indicators’ when it comes to our strategy of investing.
U.S. banking crisis plunges TD’s First Horizon deal into uncertainty (Globe & Mail)
https://www.theglobeandmail.com/business/article-td-first-horizon-banking-crisis/
“Shares of First Horizon have been plummeting, sinking more than 20 per cent since Silicon Valley Bank’s demise nearly two weeks ago, sending U.S. regional banks stocks tumbling. Early last year, TD agreed to buy First Horizon for US$25 a share, higher than the US$15.58 that the U.S. bank’s share price closed at on Wednesday. At its widest, the spread between TD’s offer and First Horizon’s beleaguered stock was US$10 on Friday.”
The author seems to feel that Toronto-Dominion Bank can now go back and renegotiate a better deal. We never know what exactly the outcome will be, which is why we stick to our process.
Negative news about our quality dividend growers is usually short-lived. That is why we don’t pay much attention to it unless it gives us an opportunity to add to our positions at a sensible price. This was the case with Toronto-Dominion Bank over the last few weeks.
The List (2023)
Last updated by BM on March 24, 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 | 6.3% | $8.02 | 19.2% | $0.51 | -29.0% | 12 |
| ATD-T | Alimentation Couche-Tard Inc. | 0.9% | $64.66 | 7.5% | $0.56 | 19.1% | 13 |
| BCE-T | Bell Canada | 6.3% | $60.79 | 0.9% | $3.82 | 5.0% | 14 |
| BIP-N | Brookfield Infrastructure Partners | 4.4% | $31.79 | 5.2% | $1.44 | 6.3% | 15 |
| CCL-B-T | CCL Industries | 1.6% | $64.66 | 11.4% | $1.06 | 10.4% | 21 |
| CNR-T | Canadian National Railway | 2.0% | $156.11 | -4.2% | $3.16 | 7.8% | 27 |
| CTC-A-T | Canadian Tire | 4.1% | $167.53 | 14.3% | $6.90 | 17.9% | 12 |
| CU-T | Canadian Utilities Limited | 5.0% | $35.93 | -2.7% | $1.79 | 1.0% | 51 |
| DOL-T | Dollarama Inc. | 0.3% | $78.72 | -1.4% | $0.22 | 2.3% | 12 |
| EMA-T | Emera | 5.0% | $54.70 | 4.0% | $2.76 | 3.0% | 16 |
| ENB-T | Enbridge Inc. | 7.0% | $50.43 | -5.4% | $3.55 | 3.2% | 27 |
| ENGH-T | Enghouse Systems Limited | 2.3% | $37.38 | 4.7% | $0.85 | 18.2% | 16 |
| FNV-N | Franco Nevada | 0.9% | $144.42 | 4.5% | $1.36 | 6.3% | 15 |
| FTS-T | Fortis | 4.0% | $56.16 | 1.5% | $2.26 | 4.1% | 49 |
| IFC-T | Intact Financial | 2.3% | $193.41 | -1.2% | $4.40 | 10.0% | 18 |
| L-T | Loblaws | 1.4% | $116.29 | -3.4% | $1.62 | 5.2% | 11 |
| MGA-N | Magna | 3.7% | $50.18 | -12.8% | $1.84 | 2.2% | 13 |
| MRU-T | Metro | 1.7% | $70.74 | -6.3% | $1.21 | 10.0% | 28 |
| RY-T | Royal Bank of Canada | 4.2% | $126.81 | -1.0% | $5.28 | 6.5% | 12 |
| SJ-T | Stella-Jones Inc. | 1.8% | $50.27 | 1.4% | $0.92 | 15.0% | 18 |
| STN-T | Stantec Inc. | 1.0% | $75.97 | 16.3% | $0.77 | 8.5% | 11 |
| TD-T | TD Bank | 4.9% | $77.62 | -11.5% | $3.84 | 7.9% | 12 |
| TFII-N | TFI International | 1.2% | $112.25 | 12.1% | $1.40 | 29.6% | 12 |
| TIH-T | Toromont Industries | 1.6% | $106.62 | 9.1% | $1.68 | 10.5% | 33 |
| TRP-T | TC Energy Corp. | 7.1% | $52.00 | -2.4% | $3.69 | 3.4% | 22 |
| T-T | Telus | 5.1% | $27.30 | 3.7% | $1.40 | 5.4% | 19 |
| WCN-N | Waste Connections | 0.8% | $133.62 | 1.5% | $1.02 | 7.9% | 13 |
| Averages | 3.2% | 2.4% | 7.3% | 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 from our website.
Last week, ‘The List’ was flat with a YTD price return of +2.4% (capital). Dividend growth also remained the same at +7.3% YTD, highlighting growth in income over the past year.
The best performers last week on ‘The List’ were Alimentation Couche-Tard Inc. (ATD-T), up +4.98%; Intact Financial (IFC-T), up +2.12%; and Canadian Tire (CTC-A-T), up +2.05%.
TFI International (TFII-N) was the worst performer last week, down -3.34%.
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 (the founder of dividendgrowth.ca)
Last week, there were no dividend increases from companies on ‘The List’.
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.
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.
One company on ‘The List’ is due to report earnings this week.
Dollarama Inc. (DOL-T) follows an off-cycle reporting schedule. It will release its fourth-quarter 2023 results on Wednesday, March 29, 2023, after markets open.
Last week, there were no earnings reports from companies on ‘The List’.
