Last updated by BM on October 02, 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 down with a YTD price return of -0.8% (capital). Dividend growth remained the same at +8.5% YTD, highlighting growth in income over the past year.
- Last week, no dividend increases from companies on ‘The List’.
- Last week, no earnings report from companies on ‘The List’.
- No 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 you are not going to sell a stock, what happens to its price is a matter of indifference. For true long-term investors – that small group of people like Warren Buffett who can shut their eyes to short-term fluctuations and have no doubt that what goes down will come back up – volatility represents opportunity rather than risk.”
– Peter L. Bernstein, Against the Gods, page 261
One of my mentors, Tom Connolly, published a report back in 2018 that I revisit and review when the market experiences a significant downturn with no clear end in sight. I believe now is a good time to share some of his insights with our readers.
Why dividend growth investors do not worry in a market sell off.
- What really matters is the rising future stream of dividends and retained earnings. Eventually, there will also be a commensurate rise in the capital value of the stock.
- In a market sell-off, it’s the excitement factor/transient return (p/e) that drops. Dividends, intrinsic values, retained earnings actually continue to grow in a bear market. This is the ultimate solid foundation under our dividend growth strategy.
- “In violent market sell-offs even solid names get treated as ‘lemons’, initially”. M. El-Erain. Take advantage of this shoddy thinking.
- Shut your eyes to short term fluctuations: we do not buy to sell. The market is a mind game. Be disciplined. Hold for the cash flow. Think very long term.
- Volatility is not risk!
- Yield on Cost – If market gyrations bother you, study the yield on the original price of stocks you purchased years ago. Such data is relaxing.
- Market price can be volatile: intrinsic value and dividends do not fluctuate much.
- We own companies that have increased dividends each year for years. Quality!
- Study year-over-year dividend data for a decade. Market bleeps are hardly there.
- Charles Ellis – “Stock returns always add up to the sum of the current dividend yield, plus dividends/earnings per share growth, plus or minus any change in the valuation”. There will still be yield and growth in a market sell-off. p.130
- Peter L. Bernstein – “If you are not going to sell a stock, what happens to its price is a matter of indifference. For true long-term investors – that small group of people like Warren Buffett who can shut their eyes to short-term fluctuations and have no doubt that what goes down will come back up – volatility represents opportunity rather than risk.” Peter L. Bernstein, Against the Gods, page 261
- James Montier – “In the long-run, the return is almost exclusively driven by dividends”
- Steven Jarislowsky – “If you have premium high compound growth noncyclicals, it is not really necessary to get out if the stock price goes too high. If far too high, obviously you can trim a bit and pay some tax, but be sure your gains have been real, not inflation mirages. Personally, I normally just hold and take a few down drafts, counting on the next bull market to take me up again.”
- Dimson, Marsh and Staunton “the vast majority of long-term real returns are derived from equity income”.
- Ben Graham – “Basically, price fluctuations have only one significant meaning for the true investor. They provide an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal. At other times he will do better if he forgets about the stock market and pays attention to his dividend returns and to the operating results of his companies.” Intelligent Investor C-8
- Warren Buffett – Feb 24, 2018 “undistributed earnings…will, over time. Translate into commensurate capital gains. Quality. Always and only quality companies.
- Jack Bogle – “the stock market is a giant distraction from the business of investing”
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Recent News
Dividend-paying stocks will be far more important than in the past (Globe & Mail)
A few of my favourite quotes from the article:
“A US$10,000 investment in 1960 in the S&P 500 would be worth more than US$4-million now, with more than 80 per cent of that gain from dividends (assuming reinvestment) and 20 per cent from capital gains.”
“Dividend stocks are attractive, but not all are the same. The most attractive firms are in good businesses with great management that can consistently increase dividends.”
“There is no point in buying stocks that pay dividends if you are going to give up a portion of your cash flows by paying large fees to active managers, most of whom, if you believe the empirical evidence, do not add any value over the long run.”
Build your own dividend growth portfolio with quality companies that have a track record of dividend growth by subscribing today. We will show you how!
I’m buying Fortis while this dividend growth darling is still cheap (Globe & Mail)
“… when it comes to investing, there is one thing that’s virtually certain: Shareholders of Fortis Inc. will get a dividend increase every year.”
Utility stocks, such as Fortis Inc., tend to be sensitive to changes in interest rates. When interest rates are low, the dividend offered by these stocks becomes more attractive to investors. Currently, investors are finding higher rates in alternative investments, which is putting pressure on the stock price. Like the author’s perspective, we also anticipate a buying opportunity for this high-quality dividend growth stock in the near future.
The List (2023)
Last updated by BM on September 29, 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 | 8.6% | $5.92 | -12.0% | $0.51 | -29.0% | 12 |
| ATD-T | Alimentation Couche-Tard Inc. | 0.8% | $68.98 | 14.7% | $0.56 | 19.1% | 13 |
| BCE-T | Bell Canada | 7.4% | $51.85 | -13.9% | $3.82 | 5.0% | 14 |
| BIP-N | Brookfield Infrastructure Partners | 4.4% | $29.40 | 5.2% | $1.44 | 6.3% | 15 |
| CCL-B-T | CCL Industries | 1.9% | $57.01 | -1.8% | $1.06 | 10.4% | 21 |
| CNR-T | Canadian National Railway | 2.1% | $147.09 | -9.7% | $3.16 | 7.8% | 27 |
| CTC-A-T | Canadian Tire | 4.7% | $146.05 | -0.4% | $6.90 | 17.9% | 12 |
| CU-T | Canadian Utilities Limited | 6.3% | $28.70 | -22.3% | $1.79 | 1.0% | 51 |
| DOL-T | Dollarama Inc. | 0.3% | $93.58 | 17.2% | $0.27 | 23.8% | 12 |
| EMA-T | Emera | 5.8% | $47.42 | -9.9% | $2.76 | 3.0% | 16 |
| ENB-T | Enbridge Inc. | 7.9% | $45.05 | -15.5% | $3.55 | 3.2% | 27 |
| ENGH-T | Enghouse Systems Limited | 2.8% | $29.98 | -16.0% | $0.85 | 18.2% | 16 |
| FNV-N | Franco Nevada | 1.0% | $133.49 | -3.4% | $1.36 | 6.3% | 15 |
| FTS-T | Fortis Inc. | 4.4% | $51.59 | -6.8% | $2.29 | 5.3% | 49 |
| IFC-T | Intact Financial | 2.2% | $198.02 | 1.1% | $4.40 | 10.0% | 18 |
| L-T | Loblaws | 1.5% | $115.40 | -4.1% | $1.74 | 10.3% | 11 |
| MGA-N | Magna | 3.4% | $53.61 | -6.8% | $1.84 | 2.2% | 13 |
| MRU-T | Metro | 1.7% | $70.54 | -6.5% | $1.21 | 10.0% | 28 |
| RY-T | Royal Bank of Canada | 4.5% | $118.70 | -7.3% | $5.34 | 7.7% | 12 |
| SJ-T | Stella-Jones Inc. | 1.4% | $65.32 | 31.7% | $0.92 | 15.0% | 18 |
| STN-T | Stantec Inc. | 0.9% | $88.13 | 34.9% | $0.77 | 8.5% | 11 |
| TD-T | TD Bank | 4.7% | $81.83 | -6.7% | $3.84 | 7.9% | 12 |
| TFII-N | TFI International | 1.1% | $128.41 | 28.2% | $1.40 | 29.6% | 12 |
| TIH-T | Toromont Industries | 1.5% | $110.62 | 13.2% | $1.68 | 10.5% | 33 |
| TRP-T | TC Energy Corp. | 7.9% | $46.71 | -12.4% | $3.69 | 3.4% | 22 |
| T-T | Telus Corp. | 6.4% | $22.18 | -15.7% | $1.43 | 7.4% | 19 |
| WCN-N | Waste Connections | 0.8% | $134.30 | 2.0% | $1.02 | 7.4% | 13 |
| Averages | 3.6% | -0.8% | 8.5% | 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’
Feel free to click on this link, ‘The List’ for a sortable version from our website.
Last week, ‘The List’ was down with a YTD price return of -0.8% (capital). Dividend growth remained the same at +8.5% YTD, highlighting growth in income over the past year.
The best performers last week on ‘The List’ were Loblaws (L-T), up +2.08%; Stella-Jones Inc. (SJ-T), up +1.57%; and Enghouse Systems Limited (ENGH-T), up +0.64%.
Algonquin Power & Utilities (AQN-N) was the worst performer last week, down -13.83%.
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.
No earnings reports from companies on ‘The List’ this week
Last week, no companies on ‘The List’ reported earnings.
