Last updated by BM on April 03, 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 up sharply with a YTD price return of +5.5% (capital). Dividend growth also increased and is now at +8.1% YTD, highlighting growth in income over the past year.
- Last week, one dividend increase from companies on ‘The List’.
- Last week, one earnings report from companies on ‘The List’.
- No 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 $100. You take $1 out of the left pocket and put it in the right pocket. You now have $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 the North American 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
“Success in investing has two parts: finding edge and fully taking advantage of it through proper position sizing. Almost all investment firms focus on edge, while position sizing generally gets much less attention.”
– Michael J. Mauboussin (2016). Thirty Years: Reflections on the Ten Attributes of Great Investors.
A question from a subscriber recently highlights the importance of position sizing when building your dividend growth investing portfolio. We go into a bit more detail on this important concept in one of our ‘Top Posts,’ Position Sizing: It Matters!
What should I do if I am overly concentrated in one of my quality dividend growth stocks and the price drops significantly?
When considering whether to sell a stock that has dropped significantly, it’s important to assess the reason for the decline. If it’s due to temporary factors, such as a short-term dip in the market or a company-specific issue that is expected to be resolved, then it may be wise to hold onto the stock. However, if the decline is due to longer-term fundamental issues with the company or industry, then it may be necessary to sell the stock to avoid further losses.
Concerning the stock being overweight in your portfolio, you have a couple of options. However, it’s important to review your portfolio and determine if it’s still aligned with your investment goals and risk tolerance. Sleeping well at night is an important part of our strategy.
One option is to rebalance your portfolio by trimming the holding incrementally on ‘up days’ in the market. Short-term narratives in the financial media have a way of working themselves out, especially if the stock in question is a stock we categorize as a ‘Core’ holding in your dividend growth portfolio.
Secondly, you may want to hold on to the stock and let dividend reinvestment and new contributions to your portfolio dilute your position size to a level that aligns with your goals and risk tolerance.
Remember, it’s important to always focus on the long-term when it comes to dividend growth investing. Short-term market fluctuations can be unpredictable, but over the long term, quality dividend growth stocks tend to perform well and provide a steady stream of growing income.
Diversification and position sizing are important for managing risk in a dividend growth investing portfolio. By using these strategies, investors can help minimize the impact of market fluctuations on their portfolios and build a more stable, sustainable income stream over the long term.
If you have not yet joined as a subscriber of the blog to receive DGI Alerts on the activity in our model portfolio, it’s not too late. Click Here.
Recent News
Dollarama profit jumps nearly 19% as high inflation drives Canadians to discount retailer (Globe & Mail)
https://www.theglobeandmail.com/business/article-dollarama-profit-inflation/
“Over the past year, the retailer has introduced higher price points up to $5 for products on its shelves, both to offset rising costs – such as for shipping and raw materials – and to bring in new items it could not offer at its previous maximum price of $4. Among the products it now sells with a $5 price tag are yoga mats, shoe racks and gardening trellises. Mr. Rossy said on the call that the new price points have been “well accepted” by shoppers.”
It appears that Dollarama has successfully navigated the effects of inflation on its business by introducing higher price points for its products (pricing power). By increasing its maximum price from $4 to $5, Dollarama has been able to offset rising costs and bring in new items that were not previously available at the lower price point. This move has been well-received by shoppers, indicating that they are willing to pay slightly higher prices for certain products.
In addition to increasing its maximum price point, Dollarama’s expansion into new markets and opening new stores have likely contributed to its continued success. By increasing its presence in the discount retail sector, Dollarama has attracted customers seeking affordable options in the face of high inflation.
Overall, it appears that Dollarama’s strategy of introducing higher price points and expanding its store network has helped it maintain its competitive edge in a challenging economic environment.
These dividend stocks beat inflation two ways (Globe & Mail)
“There may not be a better inflation fighter than the double-duty dividend stock.
The double-duty stock offers a dividend yield at or better than the inflation rate, and a history of raising dividends by average annual amounts that meet or exceed inflation. In the S&P/TSX 60 index of big blue chips, there are seven such stocks right now.”
The author has discovered one of our dividend truths:
DGI Truth #3: Dividend growth investors enjoy inflation-protected income.
While seeking out high-yield dividend stocks can be tempting for those seeking inflation-protected income, it is important to prioritize quality first. High-yielding stocks may come with risks, such as poor financial health or unsustainable dividends, which can ultimately result in lower returns or losses.
Instead, investors should look for companies with a history of consistent dividend growth and strong financials. Such companies are more likely to continue raising dividends and outperforming the market over the long term, even in inflationary environments.
By focusing on quality dividend growth stocks, investors can enjoy the inflation-protected income and benefit from long-term capital appreciation and higher total returns.
The List (2023)
Last updated by BM on March 31, 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 | 6.0% | $8.40 | 24.8% | $0.51 | -29.0% | 12 |
| ATD-T | Alimentation Couche-Tard Inc. | 0.8% | $67.95 | 13.0% | $0.56 | 19.1% | 13 |
| BCE-T | Bell Canada | 6.3% | $60.54 | 0.5% | $3.82 | 5.0% | 14 |
| BIP-N | Brookfield Infrastructure Partners | 4.4% | $33.77 | 5.2% | $1.44 | 6.3% | 15 |
| CCL-B-T | CCL Industries | 1.6% | $67.14 | 15.7% | $1.06 | 10.4% | 21 |
| CNR-T | Canadian National Railway | 2.0% | $159.47 | -2.1% | $3.16 | 7.8% | 27 |
| CTC-A-T | Canadian Tire | 3.9% | $176.37 | 20.3% | $6.90 | 17.9% | 12 |
| CU-T | Canadian Utilities Limited | 4.8% | $37.66 | 1.9% | $1.79 | 1.0% | 51 |
| DOL-T | Dollarama Inc. | 0.3% | $80.77 | 1.1% | $0.27 | 23.8% | 12 |
| EMA-T | Emera | 5.0% | $55.52 | 5.5% | $2.76 | 3.0% | 16 |
| ENB-T | Enbridge Inc. | 6.9% | $51.53 | -3.4% | $3.55 | 3.2% | 27 |
| ENGH-T | Enghouse Systems Limited | 2.2% | $38.25 | 7.1% | $0.85 | 18.2% | 16 |
| FNV-N | Franco Nevada | 0.9% | $145.80 | 5.5% | $1.36 | 6.3% | 15 |
| FTS-T | Fortis | 3.9% | $57.45 | 3.8% | $2.26 | 4.1% | 49 |
| IFC-T | Intact Financial | 2.3% | $193.42 | -1.2% | $4.40 | 10.0% | 18 |
| L-T | Loblaws | 1.3% | $123.17 | 2.4% | $1.62 | 5.2% | 11 |
| MGA-N | Magna | 3.4% | $53.57 | -6.9% | $1.84 | 2.2% | 13 |
| MRU-T | Metro | 1.6% | $74.34 | -1.5% | $1.21 | 10.0% | 28 |
| RY-T | Royal Bank of Canada | 4.1% | $129.25 | 1.0% | $5.28 | 6.5% | 12 |
| SJ-T | Stella-Jones Inc. | 1.8% | $51.79 | 4.5% | $0.92 | 15.0% | 18 |
| STN-T | Stantec Inc. | 1.0% | $79.01 | 20.9% | $0.77 | 8.5% | 11 |
| TD-T | TD Bank | 4.7% | $80.95 | -7.7% | $3.84 | 7.9% | 12 |
| TFII-N | TFI International | 1.2% | $119.29 | 19.1% | $1.40 | 29.6% | 12 |
| TIH-T | Toromont Industries | 1.5% | $110.93 | 13.5% | $1.68 | 10.5% | 33 |
| TRP-T | TC Energy Corp. | 7.0% | $52.57 | -1.4% | $3.69 | 3.4% | 22 |
| T-T | Telus | 5.2% | $26.83 | 1.9% | $1.40 | 5.4% | 19 |
| WCN-N | Waste Connections | 0.7% | $139.07 | 5.6% | $1.02 | 7.9% | 13 |
| Averages | 3.1% | 5.5% | 8.1% | 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 dividend and share price currency 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 must 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 up sharply with a YTD price return of +5.5% (capital). Dividend growth also increased and is now at +8.1% YTD, highlighting growth in income over the past year.
The best performers last week on ‘The List’ were Magna (MGA-N), up +6.76%; TFI International (TFII-N), up +6.27%; and Brookfield Infrastructure Partners (BIP-N), up +2.05%.
Telus (T-T) was the worst performer last week, down -1.72%.
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, one dividend increase from companies on ‘The List’.
Dollarama Inc. (DOL-T) on Wednesday, March 29, 2023, said it increased its 2023 quarterly dividend from $0.0553 to $0.0708 per share, payable May 05, 2023, to shareholders of record on April 14, 2023.
This represents a dividend increase of +28.0%, marking the 13th straight year of dividend growth for this quality operator of discount retail stores.
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.
No company on ‘The List’ is due to report earnings this week.
Last week, one earnings report from companies on ‘The List’.
Dollarama Inc. (DOL-T) released its fourth-quarter 2023 results on Wednesday, March 29, 2023, before markets opened.
“Our outstanding performance in Fiscal 2023, including a 12% increase in comparable store sales and EPS growth of 27%, further reinforces the relevance of our value retail concept for consumers, the enduring strength of our unique business model and our disciplined execution.”
– Neil Rossy, President and Chief Executive Officer
Highlights:
- Comparable store sales growth of 15.9% for fourth quarter and 12.0% for Fiscal 2023
- Diluted net earnings per common share up 23.0% to $0.91 for fourth quarter; up 26.6% to $2.76 for Fiscal 2023
- Fiscal 2023 annual guidance met on all key metrics
- Quarterly dividend increase of 28% to $0.0708 per common share
Outlook:
In the first half of Fiscal 2024, the Corporation expects to benefit from strong demand for its affordable, everyday items in the context of continued inflationary pressures on consumers. These demand trends are expected to normalize through the second half of the fiscal year. While the Corporation expects higher sales of lower-margin consumable products to carry over into Fiscal 2024, lower freight and logistics costs on imported goods are expected to positively impact gross margins. Wage pressures on SG&A are expected to be more substantial in Fiscal 2024 compared to the prior year, partially offset by the positive impact of scaling as well as ongoing efficiency and labour productivity initiatives.
In Fiscal 2024, the Corporation will maintain its balanced approach to capital allocation, investing in organic growth and returning capital to shareholders. The Corporation intends to maintain its pace of new store openings and investments in maintenance and transformational capital expenditures. Higher capital expenditures primarily reflect remaining investments in the Corporation’s Laval warehouse, namely racking.
In addition to its intent to maintain a dividend subject to quarterly approval, the Corporation intends to continue allocating the majority of its available cash toward the repurchase of shares through its normal course issuer bid. Management believes share repurchases continue to represent an appropriate and efficient use of excess cash to increase shareholder value.
In the current macro-economic and higher interest rate environment, the Corporation also continues to actively manage its capital structure. As such, the Corporation anticipates that its leverage ratio (adjusted net debt to EBITDA will remain below its historical target ratio of 2.75x-3.00x throughout Fiscal 2024. As at January 29, 2023, the Corporation’s adjusted net debt to EBITDA ratio was 2.71x.
Source: (DOL-T) Q4-2023 Earnings Release
