9 Canadian Companies Providing Dividend Growth Guidance

In 2017 and last year, I shared a list of Canadian companies that provide dividend growth guidance. I've decided to update  this list as I find dividend growth guidance useful in helping me assess the capital allocation plans for companies, introducing a soft control by which to judge management's actions, and assisting me in projecting the organic dividend growth rate of my portfolio for 2021. 

Of the Canadian companies that provide dividend growth guidance, Enbridge Inc. (TSE: ENB, NYSE: ENB) is likely the best known. During their Investor Day presentation on December 8th, they raised their dividend by 3.0%, below their projected 5 - 7% guidance tied to their forecasted distributable cashflow growth rate through 2023. Although the magnitude of Enbridge's dividend increase might have disappointed some investors, it is worth noting that with the shares currently yielding around 8%, any more of a raise might have set off alarm bells for investors wary of sucker yields. 

The table below could be considered a starting point for further research. Please, let me know of any other Canadian companies that provide dividend growth guidance. I'll gladly update the table with your input. Like last year, I almost included BCE Inc. as management has been consistent in raising their dividend by about 5% since 2009. However, management has been reluctant to confirm this target during conference calls and in their presentations to investors. Therefore, I opted for the conservative approach of not including them below. Lastly, the percentage beside the company's ticker symbol in brackets is the amount of the most recent dividend increase.

TC Energy Corp (TRP - 8.0%)	Dividend growth of 8-10% through 2021, 5-7% after 2021
Enbridge Inc (ENB - 3.1%)	Dividend growth of 5-7% through 2023
Emera Inc (EMA - 4.1%)	Dividend growth of 4-5% per year through 2022
Telus Corp (T - 6.9%)	Dividend growth of 7-10% per year through 2022
Capital Power Corp (CPX 6.8%)	Dividend growth of 7% per year through 2021, 5% in 2022
Fortis Inc (FTS - 5.8%)	Dividend growth of 6% per year through 2025
Algonquin Power (AQN - 10.0%)	Dividend growth of 10% per year through 2021
Brookfield Infrastructure Partners (BIP.UN - 7.0%)	Annual distribution increases of 5-9%
Brookfield Renewable Partners (BEP.UN - 5.3%)	Annual distribution increases of 5-9%

For those of you with a sharp eye, you may notice that Brookfield Property Partners (BPY.UN) and their expected annual distribution growth of 5-8% is missing from this year's list. After delivering a paltry 0.8% distribution increase in January 2020, the company changed their distribution guidance to "annual distribution growth in-line with earnings growth". However, given BPY's current yield of 8.7%, and the absolute terror that the pandemic has had on their retail and office property portfolio, most unit holders would be happy if management simply maintains the current distribution. 

Does dividend growth guidance make you more likely to invest in a company? 

My Top 5 Canadian & U.S. Stock Positions

 “Don’t tell me what you think, tell me what you have in your portfolio.”
― Nassim Nicholas Taleb, Skin in the Game: Hidden Asymmetries in Daily Life

I remember hearing Taleb use this quote in an interview when promoting Skin in the Game. The quote is so simple, yet profound...I absolutely love it. Although I try to be transparent in showing my Investment Holdings, I admit I'm slow to update these holdings, and my Transaction Journal. Furthermore, I don't feel comfortable posting exactly how many shares I own in companies, which limits my transparency. 

After writing over the summer about the top five Canadian and U.S. companies I'd be comfortable holding for 10 years, I decided to post the below two lists to check if I'm "eating my own cooking". As a reminder, these were the five Canadian and U.S. companies I said that I'd be comfortable holding for 10 years:

My top five Canadian and U.S. holdings by value on November 20, 2020 were as follows: 

Top 5 Canadian Holdings

1. Brookfield Infrastructure Partners L.P. (BIP.UN)

2. Granite REIT (GRT.UN)

3. Telus Corp (T)

4. A&W Revenue Royalties Income Fund (AW.UN)

5. Fortis Inc. (FTS)

Top 5 U.S. Holdings:

1. McDonald's Corporation (MCD)

2. Microsoft Corporation (MSFT)

3. National Storage Affiliates Trust (NSA)

4. Johnson & Johnson (JNJ)

5. Digital Realty Trust, Inc. (DLR)

I'm pretty consistent on the Canadian side, with the only difference being my fourth largest holding, A&W Revenue Royalties Income Fund replacing Royal Bank. There's two big reasons for this discrepancy. First reason is that since I own seven Canadian banks, I've been reluctant to invest a large amount in any one. This is partly due to my job, but also speaks to my trying to avoid being overconfident in any given Canadian bank. Secondly, with the hindsight afforded to me with the current pandemic, I am definitely overweight in A&W, despite really liking the strategic decisions management had made for this restaurant chain. I'm in no rush to make any big changes currently to my A&W holding, but will likely look to decrease it after the pandemic is behind us. 

I'm less consistent in the U.S., having large positions in National Storage Affiliates and Digital Realty Trust in my portfolio, instead of Realty Income and Amazon. After first sampling National Storage late last year, I've added twice more in 2020 during which the company has produced some very solid results that have lead to a higher share price. Frankly, I'm fine with this position having grown steadily as the company boosted their dividend twice by ~6% combined over the past year. Digital Realty has also been a steady performer during the pandemic, the share price has risen, and I haven't actually added to my position since September 2018. Realty Income is my eighth largest U.S. position, but I will likely add to it before year end boosting it up to closer to total value of Digital Realty. Although I like the company's proven business model, I am a little fearful of their theatre, gym and retail exposure during the pandemic. Lastly, I haven't yet bitten the bullet and invested in Amazon. Reasons for this is my current quest to avoid making stupid mistakes during the pandemic by buying companies beyond my circle of competence that don't pay dividends, the recent European Union investigation into Amazon's use of third-party sellers' data, and Bezos' admission to congress that he couldn't guarantee Amazon employees didn't use proprietary data in order to compete with third-party sellers. 

Overall, I feel what I say and what I do are pretty consistent, with some obvious gaps, especially related to Amazon. There's always room for improvement and being consistent will definitely be an area of focus for this blog going forward. 

Avoiding Stupid Investment Mistakes During the Pandemic

Within the first month of moving into our house with my then-girlfriend, now wife, I shrunk one of her favourite sweaters. Over the next eight years, I have only managed to replicate this embarrassing feat once more. I attribute this improvement to my choosing a very risk-averse approach of air drying almost all of my wife’s shirts, sweaters and pants, rather than risk shrinking another item in the dryer. My wife finds my over-reaction of barely ever using the dryer on any potentially shrinkable items humorous. Now that we’re both working from home out of the office in our basement, after I’ve put the clothes on a drying rack and start the dryer with mainly my clothes and those of my kids, my wife often checks what is on the rack, and moves the majority of her clothes into the dryer. She then usually laughs at me and tells me not to worry about shrinking her t-shirt, pajama pants, pullover, etc.. Despite these repeated assurances from her, I continue to put the great majority of her clothes on the rack each time I perform this part of the laundry.

I share this anecdote with you as I'm worried about making preventable mistakes since my portfolio has been negatively impacted this year due to the coronavirus pandemic. Between Canadian banks being told by the national regulator not to increase their dividends, A&W suspending and then decreasing their distribution due to lower traffic in their restaurants, and the disruption to retailers caused by local restrictions that has meant landlords like Brookfield may have to rethink their distributions, I've been feeling the will to undertake more transactions than I normally would in order to avoid more dividend cuts. Instead of going crazy, and totaling revamping my dividend growth strategy in the middle of this pandemic, I am making a conscious choice to hold off on making any huge changes until after covid-19 is behinds us. A large part of my reasoning to ride this out is based on my desire to avoid making mistakes similar to those of shrinking my wife's clothes. 

To avoid making a bunch of mistakes in the middle of the covid-19 pandemic, I decided to focus on my process for choosing investments. By following the short checklist below, I hope to simplify my investment decisions and keep focused on my long-term goal of financial independence through dividend growth investing.

 

1.       Does the company pay a dividend/distribution of at least 2%/3%?

2.       Has the company increased their dividend/distribution by at least 5%/2% in the last 12-months?

3.       Is the dividend/distribution sustainable as evidenced by a TTM EPS/FFO payout rate of 80%/90% or less?

4.       Is the price of this company reasonable indicated by a P/E or P/FFO of 25X or less?

5.       If this is a new position, what exposure does this company provide that current companies in my portfolio do not?

6.       If this is a new position, what is the thesis of why this company is undervalued?

Here's hoping that after covid-19 is behind us, my investment portfolio looks more like an organized, well sorted drying rack, like that curated by my wife today.

How To Be An Unsuccessful Dividend Growth Investor

Recently, I listened to Derek Sivers on Shane Parrish's Knowledge Project podcast. My favourite part of the conversation consisted of Derek reading his directive How to Stop Being Rich and Happy. I loved Derek's minimalist, instructive and pithy directives and they made me want to challenge myself to write my own . Since I don't feel qualified to draft the affirmative set of instructions, I thought I'd reverse engineer and draft my ideas regarding what it takes to be an unsuccessful dividend growth investor. My next entry will be examples of the ways in which I have disobeyed the below six instructions over the years. 

How To Be An Unsuccessful Dividend Growth Investor

     1.       Chase Yield

-          Pay no attention to payout ratios, declining revenue and profits, or management’s guidance. Forget about dividend growth, higher yields mean more cash now.

2.       Think Short-Term

-          Constantly monitor your portfolio, pay attention to every little movement of stocks, and trade frequently. More trading means more profits.

3.       Ignore Valuation

-          Since you’re basing your buying and selling decisions on your thoughts and gut feelings, ignore what the companies you transact on are actually worth. Stocks are merely numbers on a screen, and no-one knows what a fair price might be more accurately than you.

4.       Do No Research

-          No amount of regulatory filings, in-depth analyst analysis, or contrarian pieces could provide you with additional insight into the stocks you choose to purchase. Never let research change your gut feelings..

5.       Brag About Successes

-          Using every social media account you have, brag about any stock on which you make money. Everyone will know how successful you are, so there’s no need to outline your investments that resulted in losses. Obviously the losers were not your fault. 

6.       Forget Diversification, Focus on Concentration

-          Why diversify away market risk when you can only buy a handful of winning stocks. Holding three or maybe four stocks in your portfolio will ensure you maximize returns since you'll only be investing in your best ideas. 

Picking 10 Companies to Hold for 10 Years - Part 4: Popular Picks

For the last post in this series, I thought it would be interesting to see which companies were the most popular for people to pick in order to hold for 10 years. With 128 replies to Dividend Growth Investor's tweet, and most of the replies listing U.S. companies, I was also curious to see how my U.S. picks would compare to the most popular choices.  

The process I undertook to determine the most popular picks was very low-tech. I simply copy and pasted the complete twitter thread into a word processor. Using the thread, I searched the name and stock symbols for the companies that seemed popular and recorded those mentions. I didn't record any company with less than five mentions. Then the mentions were ranked by popularity. The resulting top 10 most popular picks are below:

Microsoft – 41

Johnson & Johnson – 31

Google – 30

Amazon – 29

Visa – 26

Pepsi – 17

Berkshire – 14

Disney – 11

Apple – 11

Facebook – 10

 

Some interesting facts about the top ten choices:

• Four companies do not pay a dividend (Google, Amazon, Berkshire and Facebook).
• Of the above companies, the highest dividend yield  is 3.0% from Pepsi. 
• Of the above companies, the longest streak of consecutive dividend raises belongs to Johnson & Johnson at 58 years. 
• Eight of the top ten picks are part of the top 10 biggest businesses by market capitalization in the U.S. (only Disney and Pepsi are not)

For those of you interested in the next ten most popular choices, here they are:

 

Starbucks – 9

P&G – 9

McDonald’s – 8

Coca-Cola – 7

Costco – 7

Tesla – 7

Mastercard – 6

Abbvie – 6

Home Depot – 6

Realty Income – 5

 

I was pleasantly surprised that my five picks of US stocks (Microsoft, Johnson & Johnson, Amazon, McDonald's and Realty Income) were all accounted for in the top 20. It's also interesting to note that nine of the ten companies above pay dividends, which is more in-line with what I would expect given Dividend Growth Investor asked the thought provoking question. 

Which of the above 20 companies do you think will generate the highest returns over the next 10 years???