Last updated by BM on September 04, 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 with a YTD price return of +4.1% (capital). Dividend growth remained the same and is now at +8.4% YTD, highlighting growth in income over the past year.
- Last week, no dividend increases from companies on ‘The List’.
- Last week, no earnings reports from companies on ‘The List’.
- Two companies on ‘The List’ are due to report earnings this week.
- If you’re interested in creating your own dividend growth 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
Identifying companies whose dividend growth aligns closely with price growth can considerably enhance the predictability of future returns. Dividend growth investors know that the dividend drives the price in a predictable way, not the other way around. Fortis Inc. (FTS-T) is another company on ‘The List’ that aligns very closely with this dividend growth vs price growth pattern we like to see.
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
“If a portfolio manager has pressure to succeed in the short term, they will likely make suboptimal long-term decisions.”
– Tom Connolly, dividendgrowth.ca blog
Because of the strong focus on short-term results, many portfolio managers fail to establish investment processes conducive to achieving long-term outcomes.
Tom Connolly believes that they behave this way in fear of losing their jobs (career risk). They are forced to buy/do what other professionals do so they won’t be wrong. They all fail together. Patrick Keogh of Make Your Family Rich fame believes their lawyers won’t let them invest in a concentrated portfolio of equities for fear of being sued. Whatever you believe, the results of this industry have been dismal.
Another study, which can be found in the ‘Recent News’ section below, reaffirms what we already know. Due to a combination of high fees and poor security selection, the vast majority of portfolio managers underperform their benchmarks over extended periods.
Study results:
- 84 percent underperformance over three years
- 93 percent underperformance over five years
- 95 percent underperformance over twenty years
For those genuinely interested in changing this narrative, please keep an eye on your inbox later this week. I will be sending a ‘Subscriber Only’ article regarding the quarterly performance of our Wealth-Builder Model Portfolio (CDN) after just fifteen months. By focusing on growing cash flow (income) in the short term our companies deliver above-average capital returns down the road. That is how we win!
If you have not yet joined as a paid subscriber of the blog to receive DGI Alerts on the activity and content related to our model portfolio, it’s not too late. Click Here.
Recent News
Want to boost investment income and diversification? Consider dividend ETFs (Globe & Mail)
“You want to go underneath the hood to really understand what you are investing in, and the underlying methodology used in selecting stocks,” Mr. Heakes says.
Stay clear of dividend funds and ETFs that are focused on yield. It is very difficult to find one that uses a ‘quality first’ methodology in selecting stocks. That is why dividend growth investors build their own portfolios.
Why the TSX is set to outperform U.S. stocks over the next 10 years (Globe & Mail)
The most interesting part of this article for me was the reference to a recent S&P Dow Jones publication that confirmed the results of many previous papers on the subject. Owing to a combination of high fees and adverse security selection, the vast majority of fund managers underperform their benchmark over the long term.
“According to the report, 52 per cent of funds in Canada underperformed their benchmark in 2022. This figure increased to 84 per cent over a three-year period and finally 93 per cent over the past five years. In the U.S., the study went back 20 years, and indeed even greater underperformance occurred, with 95 per cent of funds tracking the S&P 500 not meeting their benchmark.”
Unfortunately for most, they will assume that the alternative is to purchase a low-cost ETF that tracks the benchmark. Fortunately for dividend growth investors we know better.
The List (2023)
Last updated by BM on September 01, 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. 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 | 6.6% | $7.63 | 13.4% | $0.51 | -29.0% | 12 |
| ATD-T | Alimentation Couche-Tard Inc. | 0.8% | $72.39 | 20.4% | $0.56 | 19.1% | 13 |
| BCE-T | Bell Canada | 6.8% | $56.40 | -6.4% | $3.82 | 5.0% | 14 |
| BIP-N | Brookfield Infrastructure Partners | 4.4% | $32.25 | 5.2% | $1.44 | 6.3% | 15 |
| CCL-B-T | CCL Industries | 1.7% | $60.84 | 4.8% | $1.06 | 10.4% | 21 |
| CNR-T | Canadian National Railway | 2.1% | $153.91 | -5.5% | $3.16 | 7.8% | 27 |
| CTC-A-T | Canadian Tire | 4.3% | $159.48 | 8.8% | $6.90 | 17.9% | 12 |
| CU-T | Canadian Utilities Limited | 5.6% | $32.28 | -12.6% | $1.79 | 1.0% | 51 |
| DOL-T | Dollarama Inc. | 0.3% | $88.57 | 10.9% | $0.27 | 23.8% | 12 |
| EMA-T | Emera | 5.4% | $51.27 | -2.6% | $2.76 | 3.0% | 16 |
| ENB-T | Enbridge Inc. | 7.3% | $48.30 | -9.4% | $3.55 | 3.2% | 27 |
| ENGH-T | Enghouse Systems Limited | 2.8% | $30.70 | -14.0% | $0.85 | 18.2% | 16 |
| FNV-N | Franco Nevada | 0.9% | $143.54 | 3.9% | $1.36 | 6.3% | 15 |
| FTS-T | Fortis | 4.2% | $53.40 | -3.5% | $2.26 | 4.1% | 49 |
| IFC-T | Intact Financial | 2.3% | $193.99 | -0.9% | $4.40 | 10.0% | 18 |
| L-T | Loblaws | 1.5% | $118.57 | -1.5% | $1.74 | 10.3% | 11 |
| MGA-N | Magna | 3.1% | $58.95 | 2.5% | $1.84 | 2.2% | 13 |
| MRU-T | Metro | 1.7% | $70.50 | -6.6% | $1.21 | 10.0% | 28 |
| RY-T | Royal Bank of Canada | 4.3% | $122.85 | -4.0% | $5.34 | 7.7% | 12 |
| SJ-T | Stella-Jones Inc. | 1.4% | $65.53 | 32.2% | $0.92 | 15.0% | 18 |
| STN-T | Stantec Inc. | 0.8% | $90.85 | 39.1% | $0.77 | 8.5% | 11 |
| TD-T | TD Bank | 4.6% | $83.27 | -5.0% | $3.84 | 7.9% | 12 |
| TFII-N | TFI International | 1.0% | $137.53 | 37.4% | $1.40 | 29.6% | 12 |
| TIH-T | Toromont Industries | 1.5% | $112.63 | 15.3% | $1.68 | 10.5% | 33 |
| TRP-T | TC Energy Corp. | 7.5% | $49.51 | -7.1% | $3.69 | 3.4% | 22 |
| T-T | Telus Corp. | 6.0% | $23.81 | -9.5% | $1.43 | 7.4% | 19 |
| WCN-N | Waste Connections | 0.7% | $139.29 | 5.8% | $1.02 | 7.4% | 13 |
| Averages | 3.3% | 4.1% | 8.4% | 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’
Last week, ‘The List’ was up with a YTD price return of +4.1% (capital). Dividend growth remained the same and is now at +8.4% YTD, highlighting growth in income over the past year.
The best performers last week on ‘The List’ were TFI International (TFII-N), up +8.01%; Canadian Tire (CTC-A-T), up +4.49%; and Enghouse Systems Limited (ENGH-T), up +4.17%.
Intact Financial (IFC-T) was the worst performer last week, down -0.35%.
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, no dividend increases from companies on ‘The List’.
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.
Two earnings reports from companies on ‘The List’ this week
Alimentation Couche-Tard Inc. (ATD-T) will release its first-quarter fiscal 2024 results on Wednesday, September 6, 2023, after markets close.
Enghouse Systems Limited (ENGH-T) will release its third-quarter fiscal 2023 results on Thursday, September 7, 2023, after markets close.
Last week, no companies on ‘The List’ reported earnings.
This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities.
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