Last updated by BM on November 28, 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 up again with a minus -1.4% YTD price return (capital). Dividend growth of ‘The List’ continues to grow and is now at +10.6% YTD, demonstrating the rise in income over the last year.
- Last week, there was one dividend increase from a company on ‘The List’.
- Last week, there was one earnings report from a company on ‘The List’.
- Two 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
“As income investors, our primary concern is not the price of a stock on a given day. We are not sellers, we are always net buyers of stocks. So we want to constantly question whether changing conditions will put our dividends at risk. The good news is that the pressures of this selloff are valuation driven, not driven by the fundamentals. Fundamentally, the companies we are invested in likely have higher earnings this quarter than last quarter. Earnings are climbing, it’s the market’s valuation of those earnings that is declining.”
– Rida Morwa, Seeking Alpha Contributor
Changing conditions have certainly put Algonquin Power & Utilities (AQN-N) dividend at risk. Algonquin’s earnings are not climbing, they are dropping, and higher interest rates have certainly affected their ability to service their floating rate debt. With a cash flow deficit looming and a payout ratio set to exceed 100%, (AQN-N) will likely need to cut its dividend to fund its capital program.
We have never owned (AQN-N) in our portfolios because they did not score high enough on our quality indicators. Most dividend growth ETFs and model portfolios did, however own Algonquin Power & Utilities because they don’t put the same emphasis on quality as we do. They are more interested in yield than quality.
We have updated our post, ‘Finding Quality Dividend Growth Stocks’, from 2021. From time to time, we will update some of our learning material to reflect new research. Keep these indicators nearby whenever you are thinking about entering a position in a dividend growth stock.
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 up slightly with a minus -1.4% YTD price return (capital). Dividend growth of ‘The List’ remains at +10.6% YTD, demonstrating the rise in income over the last year.
The best performers last week on ‘The List’ were Loblaws (L-T), up +6.14%; Franco Nevada (FNV-N), up +4.08%; and Dollarama Inc. (DOL-T), up +3.93%.
Alimentation Couche-Tard Inc. (ATD-T) was the worst performer last week, down -1.36%.
Recent News
Couche-Tard shares have had a good year. Here’s why investors shouldn’t shy away from a winner (Globe & Mail)
The author details why Alimentation Couche-Tard Inc. is a good company to own in all markets. Although the valuation could be better, the article makes a good argument for getting in now, as this dividend grower rarely goes on sale. Nice dividend raise last week of 27.3% is a good sign that he may be right.
See the earnings report below for more insight on (ATD-T).
Why I’m buying more of these two dividend-growing utilities (Globe & Mail)
It seems that owning lower-quality dividend growth companies in the model ‘Yield Hog Dividend Growth Portfolio’ has finally caught up to Mr. Heinzl. He decided to sell his Algonquin Power & Utilities holdings and reinvest in higher-quality utilities after Algonquin reported less-than-stellar earnings and a revised outlook in its recent third quarter.
“If there is one lesson Algonquin taught us, however, it’s that even companies with a history of raising their dividends can stumble.”
Mr. Heinzl is right about dividend growers stumbling from time to time. Assessing the quality of our good dividend growers is the first step in our process. We don’t move forward unless several quality indicators are present.
Two companies on ‘The List’ are due to report earnings this week.
Royal Bank of Canada (RY-T) will release its fourth-quarter 2022 results on Wednesday, November 30, 2022, before markets open.
TD Bank (TD-T) will release its fourth-quarter 2022 results on Thursday, December 1, before markets open.
Dividend Increases
One company on ‘The List’ announced a dividend increase last week.
Alimentation Couche-Tard Inc. (ATD-T) on Wednesday said it increased its 2023 quarterly dividend from $0.11 to $0.14 per share, payable December 15, 2022, to shareholders of record on December 1, 2022.
This represents a dividend increase of +27.3%, marking the 13th straight year of dividend growth for this global convenience-store operator.
Earnings Releases
Alimentation Couche-Tard Inc. (ATD-T) follows an off-cycle reporting schedule. On Wednesday, November 23, 2022, before markets opened, they reported their Q2 Fiscal 2023 earnings.
“We are pleased to report strong results this quarter, especially in the face of the continued challenges of high inflation, energy and fuel prices across the global economy. We had good performance in convenience with favorable same store sales, particularly in our U.S. market, which had strong growth in food, and positive promotional activity. We also continued to generate robust fuel margins across all of our platforms. As always, we remain committed to delivering consistent value both inside our stores and on our forecourts to help make our customers’ lives a little easier every day.”
– President and Chief Executive Officer, Brian Hannasch
Highlights:
- Net earnings were $810.4 million, or $0.79 per diluted share for the second quarter of fiscal 2023 compared with $694.8 million, or $0.65 per diluted share for the second quarter of fiscal 2022. Adjusted net earnings1 were approximately $838.0 million compared with $693.0 million for the second quarter of fiscal 2022. Adjusted diluted net earnings per share1 were $0.82, representing an increase of 26.2% from $0.65 for the corresponding quarter of last year.
- Total merchandise and service revenues of $4.1 billion, an increase of 2.3%. Same-store merchandise revenues2 increased by 5.6% in the United States, by 2.9% in Europe and other regions1, and decreased by 1.5% in Canada.
- Merchandise and service gross margin1 increased by 0.2% in the United States to 34.0%, by 0.9% in Canada to 33.2% and decreased by 0.1% in Europe and other regions to 38.3%.
- Same-store road transportation fuel volumes decreased by 1.9% in the United States, by 6.3% in Europe and other regions, and by 6.5% in Canada.
- Road transportation fuel gross margin1 of 49.16¢ per gallon in the United States, an increase of 12.77¢ per gallon, US 9.76¢ per liter in Europe and other regions, a decrease of US 0.81¢ per liter driven by the impact of currency translation, and CA 12.55¢ per liter in Canada, an increase of CA 1.52¢ per liter. Fuel margins remained healthy throughout the network due to favorable market conditions and the continued work on the optimization of the supply chain.
- The Corporation completed the acquisition of 218 sites within the Wilsons network, consisting of 79 company-owned and operated convenience retail and fuel locations, 2 company-owned and dealer-operated locations, 137 dealer-owned and operated locations, and a fuel terminal in Atlantic Canada. According to the Corporation’s agreement with the competition bureau, a portion of this network will be divested.
- During the second quarter and first half-year of fiscal 2023, the Corporation repurchased shares for amounts of $205.2 million and $683.2 million, respectively. Subsequent to the end of the quarter, shares were repurchased for an amount of $396.2 million.
- Sustained healthy financial situation as demonstrated by a leverage ratio1 of 1.20 : 1, and a return on capital employed1 of 16.4%, both driven by strong earnings.
- 3% increase of the quarterly dividend, from CA 11.0¢ per share, bringing it to CA 14.0¢ per share.
Outlook:
“We are proud of the recent significant milestones that we have achieved especially in innovation and mobility. Over 1,000 units have been deployed so far in the roll out of our easy-to-use, smart checkout technology. We passed one million pay-by-plate fuel transactions on Circle K forecourts in Europe and launched the first-ever public EV-chargers for trucks in Scandinavia. We have also piloted our new loyalty program in the U.S. and new tiered concept in Europe. We are pleased with the early results of those pilots and are preparing for an expansion in the upcoming quarters,” concluded Brian Hannasch..
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 25, 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% | $7.68 | -46.5% | $0.70 | 5.4% | 11 |
| ATD-T | Alimentation Couche-Tard Inc. | 0.8% | $60.88 | 16.9% | $0.47 | 26.2% | 12 |
| BCE-T | Bell Canada | 5.7% | $64.15 | -2.7% | $3.64 | 4.0% | 13 |
| BIP-N | Brookfield Infrastructure Partners | 3.8% | $37.76 | -7.3% | $1.44 | 5.9% | 14 |
| CCL-B-T | CCL Industries | 1.5% | $64.07 | -5.5% | $0.96 | 14.3% | 20 |
| CNR-T | Canadian National Railway | 1.7% | $169.17 | 9.2% | $2.93 | 19.1% | 26 |
| CTC-A-T | Canadian Tire | 3.9% | $150.08 | -18.1% | $5.85 | 21.1% | 11 |
| CU-T | Canadian Utilities Limited | 4.8% | $36.84 | 0.6% | $1.78 | 1.0% | 50 |
| DOL-T | Dollarama Inc. | 0.3% | $80.75 | 27.3% | $0.22 | 9.2% | 11 |
| EMA-T | Emera | 5.1% | $52.73 | -15.8% | $2.68 | 4.1% | 15 |
| ENB-T | Enbridge Inc. | 6.1% | $55.94 | 12.9% | $3.44 | 3.0% | 26 |
| ENGH-T | Enghouse Systems Limited | 2.4% | $30.18 | -34.2% | $0.72 | 16.3% | 15 |
| FNV-N | Franco Nevada | 0.9% | $144.45 | 6.1% | $1.28 | 10.3% | 14 |
| FTS-T | Fortis | 4.0% | $54.09 | -10.6% | $2.17 | 4.3% | 48 |
| IFC-T | Intact Financial | 2.0% | $197.71 | 20.8% | $4.00 | 17.6% | 17 |
| L-T | Loblaws | 1.3% | $117.75 | 14.6% | $1.54 | 12.4% | 10 |
| MGA-N | Magna | 2.9% | $61.64 | -24.5% | $1.80 | 4.7% | 12 |
| MRU-T | Metro | 1.4% | $77.26 | 15.2% | $1.10 | 12.2% | 27 |
| RY-T | Royal Bank of Canada | 3.7% | $134.81 | -1.5% | $4.96 | 14.8% | 11 |
| SJ-T | Stella-Jones Inc. | 1.7% | $47.31 | 16.3% | $0.80 | 11.1% | 17 |
| STN-T | Stantec Inc. | 1.0% | $67.81 | -3.4% | $0.71 | 6.8% | 10 |
| TD-T | TD Bank | 3.9% | $91.02 | -8.4% | $3.56 | 12.7% | 11 |
| TFII-N | TFI International | 1.0% | $106.19 | -4.1% | $1.08 | 12.5% | 11 |
| TIH-T | Toromont Industries | 1.5% | $102.34 | -10.0% | $1.52 | 15.2% | 32 |
| TRP-T | TC Energy Corp. | 5.4% | $65.97 | 10.4% | $3.57 | 4.4% | 21 |
| T-T | Telus | 4.6% | $29.04 | -2.4% | $1.33 | 6.2% | 18 |
| WCN-N | Waste Connections | 0.7% | $142.17 | 6.0% | $0.95 | 11.8% | 12 |
| Averages | 3.0% | -1.4% | 10.6% | 18 |
