Last updated by BM on March 11, 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’.
- Last week, ‘The List’ was up from the previous week with a YTD price return of +4,6% (capital). Dividends were up and have increased by +6.8% YTD, highlighting the dependable growth in our income.
- Last week, there were no dividend announcements from companies on ‘The List’.
- Last week, there was one earnings report from companies on ‘The List’.
- One company on ‘The List’ is due to report earnings this week.
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 on ‘The List’ are added or removed annually on Jan. 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, ‘The List’ was up from the previous week with a YTD price return of +4.6% (capital). Dividends were up and have increased by +6.8% YTD, highlighting the dependable growth in our income.
The best performers last week on ‘The List’ were Franco Nevada (FNV-N), up +7.51%; Canadian National Railway (CNR-T), up +4.63%; and Brookfield Infrastructure Partners (BIP-N), up +4.62%.
Enghouse Systems Limited (ENGH-T) was the worst performer last week, down -3.21%.
| SYMBOL | COMPANY | YLD | PRICE | YTD % | DIV | YTD % | STREAK |
|---|---|---|---|---|---|---|---|
| ATD-T | Alimentation Couche-Tard Inc. | 0.8% | $82.56 | 7.6% | $0.70 | 17.4% | 14 |
| BCE-T | Bell Canada | 8.1% | $49.31 | -9.0% | $3.99 | 3.1% | 15 |
| BIP-N | Brookfield Infrastructure Partners | 4.4% | $30.36 | -1.1% | $1.62 | 5.9% | 15 |
| CCL-B-T | CCL Industries Inc. | 1.6% | $72.96 | 26.1% | $1.16 | 9.4% | 22 |
| CNR-T | Canadian National Railway | 1.9% | $173.69 | 4.1% | $3.38 | 7.0% | 28 |
| CTC-A-T | Canadian Tire | 5.1% | $136.34 | -1.6% | $7.00 | 1.4% | 13 |
| CU-T | Canadian Utilities Limited | 5.8% | $31.09 | -3.2% | $1.79 | 0.0% | 52 |
| DOL-T | Dollarama Inc. | 0.3% | $102.69 | 8.1% | $0.28 | 5.8% | 13 |
| EMA-T | Emera | 5.9% | $48.80 | -3.9% | $2.87 | 3.0% | 17 |
| ENB-T | Enbridge Inc. | 7.6% | $48.36 | -0.1% | $3.66 | 3.1% | 28 |
| ENGH-T | Enghouse Systems Limited | 2.5% | $34.70 | 2.1% | $0.88 | 4.1% | 17 |
| FNV-N | Franco Nevada | 1.3% | $115.02 | 4.4% | $1.44 | 5.9% | 16 |
| FTS-T | Fortis Inc. | 4.4% | $54.06 | -1.4% | $2.36 | 3.3% | 50 |
| IFC-T | Intact Financial | 2.1% | $226.44 | 11.4% | $4.84 | 10.0% | 19 |
| L-T | Loblaw Companies Limited | 1.2% | $148.66 | 15.6% | $1.78 | 2.4% | 12 |
| MFC-T | Manulife Financial | 5.0% | $32.04 | 10.9% | $1.60 | 9.6% | 10 |
| MGA-N | Magna | 3.4% | $54.50 | -1.8% | $1.84 | 0.0% | 14 |
| MRU-T | Metro Inc. | 1.8% | $74.00 | 8.0% | $1.34 | 10.7% | 29 |
| RY-T | Royal Bank of Canada | 4.1% | $133.98 | 0.7% | $5.52 | 3.4% | 13 |
| SJ-T | Stella-Jones Inc. | 1.5% | $75.63 | -1.3% | $1.12 | 21.7% | 19 |
| STN-T | Stantec Inc. | 0.7% | $114.75 | 9.6% | $0.83 | 7.8% | 12 |
| T-T | Telus | 6.4% | $23.36 | -1.5% | $1.50 | 5.2% | 20 |
| TD-T | TD Bank | 5.0% | $81.38 | -3.9% | $4.08 | 6.3% | 13 |
| TFII-N | TFI International | 1.1% | $148.66 | 13.3% | $1.60 | 10.3% | 13 |
| TIH-T | Toromont Industries | 1.6% | $123.61 | 9.6% | $1.92 | 11.6% | 34 |
| TRI-N | Thomson Reuters | 1.4% | $156.69 | 9.3% | $2.16 | 10.2% | 30 |
| TRP-T | TC Energy Corp. | 7.1% | $54.28 | 3.8% | $3.84 | 3.2% | 23 |
| WCN-N | Waste Connections | 0.7% | $166.80 | 12.6% | $1.14 | 8.6% | 14 |
| Averages | 3.3% | 4.6% | 6.8% | 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.
DGI Clipboard
“Current yield, using its own historic yield as a guide, is, in my view, a fine valuation measure.”
– Tom Connolly
Unlocking Value: How Dividend Yield Theory Powers Our Timely Ten Selections
Step three in our process involves monitoring our quality dividend growers regularily, which can become quite challenging depending on the number of companies we track. Fortunately, we rely on ‘The List’ instead of the vast array of stocks in the index, which streamlines our task. Nevertheless, we continually seek methods to enhance our efficiency. Through dividend yield theory, we’ve discovered an approach that has proven remarkably effective over the years in aiding us with our efforts.
Dividend yield theory is a simple and intuitive approach to valuing dividend growth stocks. It suggests that the dividend yield of quality dividend growth stocks tends to revert to the mean over time, assuming that the underlying business model remains stable. In practical terms, if a stock pays a dividend yield above its ten-year average annual yield, its price will likely increase to return the yield to its historical average. Knowing that price and yield go in opposite directions, this theory helps us find stocks that are poised for a positive price correction.
We have already pre-screened our candidates using the criteria we laid out in building ‘The List’ initially. This helps us considerably narrow the universe of investable stocks.
- 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.
We then sort ‘The List’ by how far they are from the undervalue price (Low Price) using dividend yield theory. The stocks above the line are the ones that are at or below our undervalue price. These companies make up this month’s‘ Timely Ten’.
We are always looking for ideas to put our hard earned capital to work. Let’s walk through our approach to see how we came up with this month’s ‘Timely Ten’ data.
The undervalue yield (High Yield) is where we start. Companies on ‘The List’ are given a value based on the historical yields they have traded at over the last ten years. The undervalue yield will be one at the top end of this range. This value is then used to calculate the undervalue price required (Low Price) to achieve that yield. The logic is that if the company ever reaches the undervalue yield, then the price has fallen enough and may be in line for a correction. These companies warrant further research.
Points down (Pts $ Down), or dollar amount down to the undervalue price. A negative number indicates how many points the stock is below its theoretical undervalue price. Percentage down (% Down) , represents the percentage points to the undervalue price. What we are looking for here is simply the magnitude of the undervaluation.
Looking at this spreadsheet version, we can see that half of the ‘Timely Ten’ have double digits of ‘downside risk’ already built into their current price. These companies stand out as being the most ‘sensibly priced’. The other observation is that these same companies also have lower safety ratings (Value Line Safety) than others in the Timely Ten.
We always prioritize quality over price in our work. Although not as undervalued (by our dividend yield theory metric), TD Bank and Fortis Inc. would be safer candidates for further research based on their higher quality ratings.
Using historical yield as a guide, we can quickly assess the valuation for the companies we track and identify candidates for further research.
Check us out on magicpants.substack.com for more info in this week’s issue….
