Last updated by BM on November 21, 2022
Summary
- This article is part of our weekly series (MP Market Review) highlighting the performance and activity from the previous week related to the financial markets and Canadian dividend growth companies we follow on ‘The List’.
- Last week, ‘The List’ was down slightly with a minus -3.3% YTD price return (capital). Dividend growth of ‘The List’ remains at +10.3% YTD, demonstrating the rise in income over the last year.
- Last week, there were no dividend increases from companies on ‘The List’.
- Last week, two companies on ‘The List’ reported their earnings.
- No companies on ‘The List’ are due to report earnings this week.
- Are you looking to build an income portfolio of your own? When you become a premium subscriber, you get exclusive access to the MP Wealth-Builder Model Portfolio (CDN) and subscriber-only content. Start building real wealth today! Learn More
Williams shared many of Graham’s views when it came to drawing a distinction between investing and speculating. Williams defined an investor as “a buyer interested in dividends, or coupons and principal,” and a speculator as “a buyer interested in the resale price” alone.
– John Burr Williams, The Theory of Investment Value
As dividend growth investors, we like to tell the story of the two farmers, the chicken farmer and the egg farmer. Given what we are seeing in markets now, we thought it was a good time to tell the story again.
“Imagine two farms and two farmers. One farmer raises chickens and sells them to grocery stores. We’ll call him a chicken farmer. The other farmer keeps hens in a henhouse and feeds the eggs to his rather large family. The second one is an egg farmer.
The first person, the chicken farmer, is vitally interested in the market value of chickens. The second one, the egg farmer, is vitally interested in the number of eggs that his hens can lay, and in the health of the hens, but he doesn’t care at all about the market value of his hens.
For the chicken farmer, risk means the probability of a decline in the price of chickens. On the other hand, the egg farmer could care less about market values. His risks are foxes, and viruses, and other such threats to the well-being of his hens.”
– Jim Garland,, Memo to the Darcy Family: To Thine Own Self Be True
The ‘chicken farmers’ make up most of the investing world and are still chasing the latest narrative or big idea after losing a substantial amount of their wealth during the volatile markets of 2022. Many have either panicked and sold their high-flying ETFs and funds because they needed the income to live off or have not yet realized any losses and have re-entered on every bear market bounce to lower their cost base, only to see their lower prices go even lower. For the latter group, you are not alone. Maybe it’s time to take a page out of the ‘egg farmers’ playbook.
The ‘egg farmers’ above are fine as the dividends (eggs) from their chickens continue to grow in both up and down markets.
Our advice to someone who has been in your shoes, stop being a ‘speculator’ and look at dividend growth investing for a portion of your net worth. You won’t be disappointed. A growing dividend and a growing price (eventually) are a powerful combination.
Armed with a strategy that pays us in both up and down markets, we take a patient approach to investing and wait for a sensible price on our good dividend growers. Buying more income at a lower price is our key to wealth-building in today’s chicken-farming world.
Performance of ‘The List’
At the end of the post is a snapshot of ‘The List’ from last Friday’s close. Feel free to click on the ‘The List’ menu item above for a sortable version.
Last week, ‘The List’ was down slightly with a minus -3.3% YTD price return (capital). Dividend growth of ‘The List’ remains at +10.3% YTD, demonstrating the rise in income over the last year.
The best performers last week on ‘The List’ were Metro (MRU-T), up +6.34%; CCL Industries (CCL-B-T), up +5.75%; and Waste Connections (WCN-N), up +2.90%.
Algonquin Power & Utilities (AQN-N) was the worst performer last week, down -17.53%.
Recent News
Falling Q4 profit forecasts another negative for U.S. stocks (Globe & Mail)
“For the Fed to achieve their inflation targets, they’re going to have to push the economy into a recession,” which means 2023 profit estimates “have to come down a lot more,” he said.”
According to the article, persistent inflation means that rates are going to continue to rise, and the economy will therefore continue to slow. This has been our view all along.
Fortunately, good bargains on our dividend growers are still to come.
Boring stocks work better than you think (Globe & Mail)
“A highly volatile asset should be less attractive than a more stable one, everything else being equal. But volatility’s allure makes perfect sense psychologically. What do people want? Huge returns. When do they want them? Now.”
Canadian Railways, Telcos, Utilities, Grocers, Banks and Financials (think of ‘The List’) have put up impressive returns for years, according to the author. His laggards have been technology, precious metal miners, and exploration and production companies in the energy space.
“If there is a lesson here, it is that boring works better than you may think. You may never have the thrill of watching your investments soar overnight. Then again, you are far less likely them to see them abruptly wither. Over the long haul, the race goes to the mundane, not the magic beans.”
No companies on ‘The List’ are due to report earnings this week.
Dividend Increases
Last week, there were no dividend increases from companies on ‘The List’.
Earnings Releases
Last week, two companies on ‘The List’, reported earnings. Grocers got their chance to report last week and they did not disappoint.
Metro (MRU-T) follows an off-cycle reporting schedule. This means its fiscal year ends at the end of September. On Wednesday, November 16, 2022, before markets opened, Metro released its fourth-quarter 2022 results.
“Our 2022 fiscal year ended with a solid performance in the fourth quarter as our teams worked tirelessly to offer products at affordable and competitive prices in the current high inflation environment, which we know is difficult for many consumers. Our diversified business model allowed us to maintain stable gross margins while delivering good value to our customers, as reflected in overall tonnage growth and market share gains in the quarter. We are confident that our dedicated teams, multiple banners, strong private label offering, effective weekly promotions and loyalty programs position us well to continue to meet the needs of our customers as we navigate in this period of turbulence.
– President and Chief Executive Officer, Eric La Fleche
Highlights:
- Sales of $4,432.6 million, up 8.3%
- Food same-store sales up 8.0%
- Pharmacy same-store sales up 7.4%
- Net earnings of $168.7 million, down 13.0% and adjusted net earnings of $219.4 million, up 9.4%
- Fully diluted net earnings per share of $0.70, down 11.4%, and adjusted fully diluted net earnings per share of $0.92, up 13.6%
- Non-cash impairment of a loyalty program totaling $60.0 million
Outlook:
“As we begin our new fiscal year, we continue to face market uncertainties, labour shortages and elevated levels of cost inflation and it is difficult to predict how this macroeconomic environment will evolve. We remain steadfast in our focus to deliver value to our customers through our robust merchandising programs, our strong private label offer and working with our supply chain partners. We have also decided to exit the UGI purchasing group effective March 11, 2023. This decision will have no significant impact on our financial results.”
– President and Chief Executive Officer, Eric La Fleche
See the full Earnings Release here
Loblaws (L-T) released its third-quarter 2022 results on Wednesday, November 16, 2022, before markets opened.
“In a difficult economic environment, Loblaw is putting the strength of its unique assets to work for Canadians, offering record loyalty rewards, unmatched private-label brands, the best discount stores, and an inflation-fighting price freeze,” said Galen G. Weston, Chairman and President, Loblaw Companies Limited. “Customer expectations for value have never been higher, and we are working hard to meet them.”
– Chairman and President, Galen G. Weston
Highlights:
- Revenue was $17,388 million, an increase of $1,338 million, or 8.3%.
- Retail segment sales were $17,130 million, an increase of $1,299 million, or 8.2%.
- Food Retail (Loblaw) same-stores sales increased by 6.9%.
- Drug Retail (Shoppers Drug Mart) same-store sales increased by 7.7%.
- E-commerce sales increased by 3%.
- Operating income was $991 million, an increase of $128 million, or 14.8%.
- Adjusted EBITDA was $1,846 million, an increase of $172 million, or 10.3%.
- Retail segment adjusted gross profit percentage was 30.8%, an increase of 10 basis points.
- Net earnings available to common shareholders of the Company were $556 million, an increase of $125 million or 29.0%. Diluted net earnings per common share were $1.69, an increase of $0.42, or 33.1%.
- Adjusted net earnings available to common shareholders of the Company were $663 million, an increase of $123 million, or 22.8%.
- Adjusted diluted net earnings per common share were $2.01, an increase of $0.42 or 26.4%.
- Repurchased for cancellation, 3.4 million common shares at a cost of $403 million and invested $432 million in capital expenditures. Retail segment free cash flow was $543 million.
Outlook:
Loblaw will continue to execute on retail excellence in its core grocery and pharmacy businesses while advancing its growth initiatives in 2022. In the third year of the pandemic, the Company’s businesses remain well placed to service the everyday needs of Canadians. However, the Company cannot predict the precise impacts of COVID-19, the related industry volatility and inflationary environment on its 2022 financial results.
On a full year basis, the Company continues to expect:
- its Retail business to grow earnings faster than sales;
- to invest approximately $1.4 billion in capital expenditures, net of proceeds from property disposals, reflecting incremental store and distribution network investments; and
- to return capital to shareholders by allocating a significant portion of free cash flow to share repurchases.
Based on its year to date operating and financial performance and momentum exiting the third quarter, the Company expects full year adjusted net earnings per common share growth in the high teens.
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. Instead, 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 November 18, 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 | 9.2% | $7.67 | -46.6% | $0.70 | 5.4% | 11 |
| ATD-T | Alimentation Couche-Tard Inc. | 0.7% | $61.72 | 18.5% | $0.44 | 18.1% | 12 |
| BCE-T | Bell Canada | 5.7% | $63.37 | -3.9% | $3.64 | 4.0% | 13 |
| BIP-N | Brookfield Infrastructure Partners | 3.9% | $37.15 | -8.8% | $1.44 | 5.9% | 14 |
| CCL-B-T | CCL Industries | 1.5% | $62.37 | -8.0% | $0.96 | 14.3% | 20 |
| CNR-T | Canadian National Railway | 1.8% | $166.49 | 7.5% | $2.93 | 19.1% | 26 |
| CTC-A-T | Canadian Tire | 4.0% | $147.86 | -19.3% | $5.85 | 21.1% | 11 |
| CU-T | Canadian Utilities Limited | 5.0% | $35.85 | -2.1% | $1.78 | 1.0% | 50 |
| DOL-T | Dollarama Inc. | 0.3% | $77.70 | 22.5% | $0.22 | 9.2% | 11 |
| EMA-T | Emera | 5.2% | $51.32 | -18.0% | $2.68 | 4.1% | 15 |
| ENB-T | Enbridge Inc. | 6.4% | $53.97 | 8.9% | $3.44 | 3.0% | 26 |
| ENGH-T | Enghouse Systems Limited | 2.4% | $29.21 | -36.3% | $0.72 | 16.3% | 15 |
| FNV-N | Franco Nevada | 0.9% | $138.79 | 2.0% | $1.28 | 10.3% | 14 |
| FTS-T | Fortis | 4.1% | $53.43 | -11.7% | $2.17 | 4.3% | 48 |
| IFC-T | Intact Financial | 2.1% | $194.26 | 18.7% | $4.00 | 17.6% | 17 |
| L-T | Loblaws | 1.4% | $110.94 | 8.0% | $1.54 | 12.4% | 10 |
| MGA-N | Magna | 2.9% | $62.00 | -24.0% | $1.80 | 4.7% | 12 |
| MRU-T | Metro | 1.4% | $76.67 | 14.4% | $1.10 | 12.2% | 27 |
| RY-T | Royal Bank of Canada | 3.7% | $132.70 | -3.0% | $4.96 | 14.8% | 11 |
| SJ-T | Stella-Jones Inc. | 1.7% | $46.62 | 14.6% | $0.80 | 11.1% | 17 |
| STN-T | Stantec Inc. | 1.1% | $66.48 | -5.3% | $0.71 | 6.8% | 10 |
| TD-T | TD Bank | 4.0% | $89.42 | -10.0% | $3.56 | 12.7% | 11 |
| TFII-N | TFI International | 1.0% | $104.80 | -5.4% | $1.08 | 12.5% | 11 |
| TIH-T | Toromont Industries | 1.5% | $99.98 | -12.1% | $1.52 | 15.2% | 32 |
| TRP-T | TC Energy Corp. | 5.6% | $64.00 | 7.1% | $3.57 | 4.4% | 21 |
| T-T | Telus | 4.6% | $29.17 | -2.0% | $1.33 | 6.2% | 18 |
| WCN-N | Waste Connections | 0.7% | $140.20 | 4.6% | $0.95 | 11.8% | 12 |
| Averages | 3.1% | -3.3% | 10.3% | 18 |
