Last updated by BM on March 7, 2022
“The big money is not in the buying or selling but in the waiting.” – Charlie Munger
We woke up this morning with oil prices at $125/barrel! The prior high was $135 in 1980. There is a direct correlation between rising oil prices and recessions according to Josh Steiner. “Since 1946 there have been twelve recessions, eight have followed major oil price shocks, while a further three have occurred immediately following more modest, but still notable, oil price run-ups… That leaves just one out of twelve recessions that didn’t have any oil fingerprints left at the crime scene (Recession Recipe, Josh Steiner). “
Coincidence or not, the run up in oil prices is not good for the stock markets. Couple that with rising interest rates (Bank of Canada just announced one last week) and an overvalued market coming into 2022 and I think you know where we are headed. Our existing dividend growers were bought with a ‘margin of safety’ well before the run up in oil prices so we will sit tight and enjoy the rising income growth for now. Forego the temptation to chase prices into a volatile market and be more like Charlie. ‘Sensible prices’ are just around the corner.
Performance of ‘The List’
‘The List’ was up slightly this week with a neutral 0.0% YTD price return (capital) but an uptick in dividend growth with another big dividend announcement, for an average increase of 8.7% in income so far in fiscal 2022.
The best performers last week on ‘The List’ were Waste Connections (WCN-N) up 8.7%; Franco Nevada (FNV-N) up 7.6%; and TC Energy (TRP-T) up 7.6%.
Magna International (MGA-N) was the worst performer this week, down -18.0%.
One company on ‘The List’ announced a dividend increase and one company an earnings report for Q4 and Full Year 2021. In addition, TD Bank and Enghouse Systems reported on their Q1 2022 earnings.
Recent News
There was an article in the Globe & Mail this week about Magna (MGA-N), CCL Industries (CCL-B-T), and Alimentation Couch-Tard (ATD-T) having to shut down their Russia operations due to sanctions imposed from the war in Ukraine. All of their stock prices suffered when the news came out. If you look closer however you discover that the Russian operations account for a very small percentage of each company’s revenues. Sometimes the narratives in the media create opportunities for investors who focus more on fundamentals.
With the acquisition of First Horizon, TD Bank vaults itself from #10 to #6 in the United States. As the second largest bank in Canada and now the sixth largest in the United States, TD Bank solidifies itself as not only a quality Canadian dividend grower but a North American one. Although TD may face both regulatory and integration challenges with this acquisition, there is a lot to like about the acquisition. TD Bank management is expecting significant cost synergies from the deal, as well as revenue synergy opportunities from fixed income trading and mortgage warehouse lending. Glad to see TD Bank putting some of their cash (they did not pay in dividends last year) to good use.
Here are a couple of the companies on ‘The List’ due to report earnings this week:
Stella Jones (SJ-T) is scheduled to report earnings before the market opens Wednesday, Mar. 09
Franco Nevada (FNV-N) is scheduled to report earnings after hours Wednesday, Mar. 09
Dividend Increases
There was one company on ‘The List’ that announced a dividend increase this week as we wind down our Q4 2021 earnings calendar and begin to report on 2022.
Enghouse Systems (ENG-T) on Thursday said it increased its 2022 quarterly dividend from $0.16 to $.185 per share, payable May 31, 2022, to shareholders of record on May 17, 2022.
This represents a dividend increase of 15.6% and the 14th consecutive year in which the company increased its dividend by over 10%.
Earnings Releases
We had three earnings reports from companies on ‘The List’ this past week. Let’s start with TD Bank.
TD Bank (TD-T)
“TD started the year strong, delivering revenue growth across all our business segments as customer activity gained additional momentum,” said Bharat Masrani, Group President and CEO, TD Bank Group. With a focus on growth, we continue to make investments in technology and new capabilities, positioning us well to meet our customers’ and clients’ evolving needs.” “I am also pleased to have announced our deal with First Horizon earlier this week. A bold acceleration of our U.S. strategy to acquire a premier regional bank, with a strong presence in highly attractive markets across the U.S. Southeast – a terrific strategic fit for TD,” added Masrani.
FIRST QUARTER FINANCIAL HIGHLIGHTS, compared with the first quarter last year:
- Reported diluted earnings per share were $2.02, compared with $1.77.
- Adjusted diluted earnings per share were $2.08, compared with $1.83.
- Reported net income was $3,733 million, compared with $3,277 million.
- Adjusted net income was $3,833 million, compared with $3,380 million.
TD Bank continues to exceed earnings expectations and grow their business with acquisitions. With a 30% increase in price over the last year, the recent pullback is self-explanatory. We will continue to add to our position at a sensible price as they don’t get much better than TD Bank for a core position in any dividend growth portfolio.
Enghouse Systems (ENGH-T)
“Fiscal 2021 was another year of positive income and operating cash flows, improved Adjusted EBITDA margins and record distributions to shareholders. Although record revenue was not achieved this year, we again demonstrated the benefit of maintaining our financial discipline during times of significant market fluctuations. In doing so, we achieved Adjusted EBITDA margins of 36.1% and cash flows from operations, excluding changes in working capital, of $167.8 million. We closed the year with $198.8 million in cash, cash equivalents and short-term investments while completing several acquisitions and returning dividends to our shareholders of $115.7 million.” Stephen J. Sadler Chairman of the Board and Chief Executive Officer
Financial and operational highlights for the three months ended January 31, 2022 compared to the three months ended January 31, 2021 are as follows:
- Revenue achieved was $111.1 million compared to revenue of $119.1 million;
- Results from operating activities was $35.7 million compared to $40.7 million;
- Net income increased to $21.6 million compared to $20.6 million;
- Adjusted EBITDA was $38.6 million compared to $44.5 million;
- Cash flows from operating activities excluding changes in working capital was $38.7 million compared to $41.7 million.
“During the year, we focused on scaling costs to revenues, improving our gross profit margins and decreasing overheads by reducing facilities, travel and headcount costs. This, combined with higher margins associated with reduced acquisition integration requirements during the fiscal year, increased our Adjusted EBITDA margins for the year to 36.1% from 35.1% in the prior year. We completed three acquisitions during the year, broadening our product portfolio, geographic reach and hosted solutions portfolio, deploying $35.5 million for the acquisitions of Altitude, Nebu and Momindum. We continue to actively pursue acquisition opportunities and expand our acquisition pipeline. However, valuations for technology acquisitions remain high and many opportunities did not meet our acquisition, financial and operating criteria during the year. We also returned record dividends to shareholders during the year, including a special dividend of $83.2 million or $1.50 per common share.” Stephen J. Sadler Chairman of the Board and Chief Executive Officer
Enghouse Systems has struggled to reach the revenue and profitability numbers it achieved during the COVID era. The market does not like companies who do not continue to grow year over year. Perhaps a lesson here for dividend growth investors looking to start a portfolio…the fundamentals for ENGH-T are above average when it comes to their decade long track record, but it seems every little bit of bad news hits their stock price hard. We have seen this before with the market punishing smaller capitalized companies like ENGH-T more severely on any type of negative news. Be careful with how many small cap (non-core) dividend growers you have in your portfolio, if you want to minimize volatility.
Algonquin Power and Utilities Corp. (AQN-N)
“We are pleased that the Company has successfully delivered on many of its strategic priorities in 2021, including the continued execution of several exciting new renewable projects and a further advancement of sustainability initiatives. Despite weaker weather conditions, we are pleased to report solid fourth quarter operating results from the Company’s diversified and resilient business model,” said Arun Banskota, President and Chief Executive Officer of AQN. “Looking forward, we remain confident that the Company’s $12.4 billion capital expenditure plan from 2022 through 2026 will continue to drive long term shareholder value.”
Fourth Quarter and Full Year Financial Highlights
- Annual revenue of $2,285.5 million, an increase of 36%;
- Annual Adjusted EBITDA of $1,076.9 million, an increase of 24%;
- Annual Adjusted Net Earnings of $449.6 million, an increase of 23%;
- Annual Adjusted Net Earnings per share of $0.71, an increase of 11%;
- Fourth quarter revenue of $594.8 million, an increase of 21%;
- Fourth quarter Adjusted EBITDA of $297.6 million, an increase of 18%;
- Fourth quarter Adjusted Net Earnings of $136.3 million, an increase of 7%; and
- Fourth quarter Adjusted Net Earnings per share of $0.21, representing no change, in each case on a year-over-year basis.
A revenue increase of 36% is impressive but at what expense. Shareholder dilution is worrisome as are stretched credit metrics. Over the last ten years, AQN-N has gone from 119 million shares outstanding to over 619 million today. Shares have been diluted by more than five times. Luckily, EDITDA and FFO numbers have kept pace. An investment in AQN-N means you believe the growth will continue.
If you are looking for a defensive investment in a regulated utility, there may be better options with less risk than Algonquin Power & Utilities right now.
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 4, 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 | 4.6% | $14.70 | 2.4% | $0.68 | 2.3% | 11 |
| ATD-T | Alimentation Couche-Tard Inc. | 0.9% | $48.52 | -6.9% | $0.44 | 18.1% | 12 |
| BCE-T | Bell Canada | 5.2% | $71.15 | 8.0% | $3.68 | 5.1% | 13 |
| BIP-N | Brookfield Infrastructure Partners | 3.6% | $59.68 | -2.3% | $2.16 | 5.9% | 14 |
| CCL-B-T | CCL Industries | 1.7% | $57.23 | -15.6% | $0.96 | 14.3% | 20 |
| CNR-T | Canadian National Railway | 1.8% | $161.48 | 4.3% | $2.93 | 19.1% | 26 |
| CTC-A-T | Canadian Tire | 2.9% | $179.59 | -2.0% | $5.20 | 10.6% | 11 |
| CU-T | Canadian Utilities Limited | 4.9% | $36.32 | -0.8% | $1.78 | 1.0% | 50 |
| DOL-T | Dollarama Inc. | 0.3% | $66.66 | 5.1% | $0.20 | 1.7% | 11 |
| EMA-T | Emera | 4.3% | $61.56 | -1.6% | $2.65 | 2.9% | 15 |
| ENB-T | Enbridge Inc. | 6.0% | $56.90 | 14.9% | $3.44 | 3.0% | 26 |
| ENGH-T | Enghouse Systems Limited | 2.1% | $34.71 | -24.3% | $0.72 | 16.3% | 15 |
| FNV-N | Franco Nevada | 0.8% | $158.24 | 16.3% | $1.28 | 10.3% | 14 |
| FTS-T | Fortis | 3.5% | $60.29 | -0.3% | $2.14 | 4.4% | 48 |
| IFC-T | Intact Financial | 2.2% | $184.04 | 12.4% | $4.00 | 17.6% | 17 |
| L-T | Loblaws | 1.4% | $106.02 | 3.2% | $1.46 | 6.6% | 10 |
| MGA-N | Magna | 2.9% | $62.45 | -23.5% | $1.80 | 4.7% | 12 |
| MRU-T | Metro | 1.6% | $69.65 | 3.9% | $1.10 | 10.0% | 27 |
| RY-T | Royal Bank of Canada | 3.5% | $138.25 | 1.0% | $4.80 | 11.1% | 11 |
| SJ-T | Stella-Jones Inc. | 1.9% | $38.71 | -4.8% | $0.72 | 0.0% | 17 |
| STN-T | Stantec Inc. | 1.1% | $61.98 | -11.7% | $0.71 | 6.8% | 10 |
| TD-T | TD Bank | 3.6% | $98.54 | -0.8% | $3.56 | 12.7% | 11 |
| TFII-T | TFI International | 1.0% | $131.29 | -6.3% | $1.36 | 17.4% | 11 |
| TIH-T | Toromont Industries | 1.4% | $110.36 | -2.9% | $1.52 | 15.2% | 32 |
| TRP-T | TC Energy Corp. | 5.0% | $71.73 | 20.1% | $3.57 | 4.4% | 21 |
| T-T | Telus | 3.9% | $33.50 | 12.6% | $1.31 | 4.4% | 18 |
| WCN-N | Waste Connections | 0.7% | $134.83 | 0.6% | $0.92 | 8.9% | 12 |
| Averages | 2.7% | 0.0% | 8.7% | 18 |
