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???

Picking 10 Companies to Hold for 10 Years - Part 3: U.S. Companies

Having establishing my criteria for picking companies to hold for the next 10 years, this post will explain how my five U.S. companies meet, or in one case, doesn't exactly meet, these criteria. Before progressing, I want to give credit to Justin Law for taking up the torch from David Fish and updating the Dividend Champions spreadsheet which can be found on this website. I encourage you to visit the site filled with valuable resources for dividend-focused investors, including the Champions spreadsheet which is updated monthly. 

In case you haven't had a chance to look at the criteria entry, the six criteria I used to pick the five U.S. companies that I would hold for 10 years are:

1. Dividend Yield & Dividend Growth
2. Established Track Record
3. Reasonable Valuation
4. Diversification (across sectors and geographically)
5. Momentum
6. Current Ownership (or high on my watch list)

My five U.S. companies are:

Realty Income:
Wanting to select at least one U.S. REIT, I felt the obvious choice was "The Monthly Dividend Company". Over its 51-year operating history, Realty Income has paid out 601 consecutive months of dividends, raised the distribution 91 times, and provides good geographical exposure across the U.S. through their 600+ tenants. Although the stock in down about 10% in the last year, the price is a reasonable multiple of about 19X trailing FFO. A key risk to consider is the ability of Realty Income's tenant base to continue to pay their rent despite the coronavirus pandemic. The fact that 91.5% of tenants paid their July rent should provide some comfort in that respect.

Johnson and Johnson:
Based on demographics alone, choosing a healthcare company to invest in for the next 10 years seemed like a good choice. What JNJ provides in terms of geographical diversification (almost half their revenue is generated outside the U.S.), product diversification (providing consumer, pharmaceutical and medical devices), along with the potential upside from their covid-19 vaccine make this a worthwhile selection. The 58 consecutive years that company has increased its dividend, and the current ~2.8% yield (despite the 15% YoY increase in share price) help make the pick easy. The downside I see for JNJ is the regulatory risk and possible lawsuits that could materially impact their financial results. Still, I feel comfortable owning shares for the long-term. 

Microsoft:
When considering a global technology company to include in my picks, Microsoft seemed obvious for a couple reasons. With about 48% of revenue generated outside the U.S., Microsoft is truly global and nature and has an incredibly strong credit profile reflected in their AAA S&P rating. With the share price up over 55% in the last year, the company has experienced strong momentum. When looking at dividend and valuation metrics, the company has a very modest 1% dividend yield, but has grown their payout annually for 18 consecutive years, including a 7% raise last year. The biggest downside I see with Microsoft is a lofty valuation of 36X trailing earnings, which is hard to justify given the ~13% revenue growth over the last year. 

McDonald's:
With 63% of their sales generated outside of the U.S., and one of the most recognized logos in the world, McDonald's seems like a good bet to hold over the next 10 years. With 44 consecutive years of dividend increases (including about 8% last year), and a 2.4% yield, management has proven that returning cash to shareholders is a priority. On the other hand, the stock price is down about 5% over the past year, yet the company continues to trade at a rather lofty 33X trailing earnings. More than another other company in the ten I have selected for this exercise, I think the coronavirus pandemic could have lasting negative effects on McDonald's sales. I do take some comfort in the fact that local McDonald's drive-through was constantly busy during the three months of partial shutdown here in Quebec. 

Amazon:
The strikes against Amazon are pretty obvious: no dividend, trading at 121X trailing earnings, and the only company I don't personally own of the ten selected. Why would I pick it to own for the next 10 years? Momentum is a factor (up almost 80% in the last year), geography/product diversification, and most importantly, market domination. I'm not sure any other single company (possibly Zoom?) stands to benefit more from this pandemic than Amazon. Are people more comfortable shopping online during a pandemic? Are they thankful to be entertained by Amazon Prime movies, shows and video games? Does Amazon web services stand to grow as more businesses move to web-based storage and software? The big risk I see for Amazon is regulation. Hearing Jeff Bezos not guaranteeing to Senators that Amazon didn't use competitor selling data to create their own private label products was alarming. I wouldn't discount having some sort of forced breakup thrust upon the company by a regulatory authority (more than likely outside of North America)...but, Bezos has a way of sniffing out opportunities to profit where others don't follow. I won't bet against him succeeding over the next 10 years.

Do you see any key risks in my five choices above that I overlooked???

Picking 10 Companies to Hold for 10 Years - Part 2: Canadian Companies

Having establishing my criteria for picking companies to hold for the next 10 years, this post will explain how my five Canadian companies meet these criteria. Before progressing, I want to give credit and acknowledge the Dividend Growth Investing & Retirement website operator that compiles the monthly Canadian Dividend Growth All-Star list which I use extensively. I encourage you to sign up to receive this valuable resource each month. 

In case you haven't had a chance to look at the criteria entry, the six criteria I used to pick the five Canadian companies that I would hold for 10 years are:

1. Dividend Yield & Dividend Growth
2. Established Track Record
3. Reasonable Valuation
4. Diversification (across sectors and geographically)
5. Momentum
6. Current Ownership (or high on my watch list)

My five Canadian companies are:

Telus:

The strength of Telus’ case to be included in a short-list of Canadian companies starts with their 5% yield, around 7% dividend growth last year, their commitment to growing their dividend growing forward, 16 years of consecutive dividend increases, and reasonable price at around 17X trailing earnings. Telus fails the momentum criterion (price is basically flat over the last year), and revenue is Canada dependent. Perhaps more than any other company on the Canadian list, Telus faces some regulatory risk as it relates to the Canadian Radio-television and Telecommunications Commission demands to lower their Internet prices, a key electoral promise for the governing Liberals in the last federal election. However, I feel this risk is partly offset by the dominant position that Telus holds as a telecommunications company in Western Canada.

Royal Bank:

I felt compelled to include one bank in my list of five companies that I would feel comfortable holding over the next decade, and decided on picking the largest bank in Canada by assets. Royal provides an attractive 4.7% yield, which it grew at around 8% last year (no expected dividend growth this year given covid-19), and is priced at a bargain 8X of trailing earnings. Although Royal has some operations outside of Canada, they are largely dependent on the Canadian economy, and their shares are down about 5% over the past year, showing poor momentum. Given how reliant Royal Bank is on the Canadian economy, a key risk is likely the tepid growth that Canada could experience as a result of the coronavirus pandemic.

Brookfield Infrastructure Partners (“BIP”):

As one of my largest holdings, I felt compelled to include BIP as it meets so many criteria. Solid starting yield 4.4% (with dividends being paid in USD), 12 consecutive years of dividend growth (~7% raise in January), a downright reasonable price of ~13X trailing FFO, and worldwide diversification through their four operating segments (utilities, transport, energy, data infrastructure). Momentum is modestly positive, with the stock up about 10% in the last year. The key risk I see with BIP is the complex corporate structure that might pit management priorities against those of unit holders. That said, I do think Bruce Flatt manages the larger Brookfield empire as well as any CEO in North America.

 

Granite REIT:

Although it’s not the best known REIT in Canada, Granite is worth including in a portfolio designed to prosper for a decade. Due to the strong momentum of it’s share price (up 25% over the last year), the initial yield isn’t super impressive at 3.7%, nor is their growth of distributions at 2.7% last year. However, Granite has an established track record of raising their distributions annually over the past 9 years, is still priced pretty reasonably at ~20X FFO, and has excellent geographical diversification with more properties in the US (34 at YE19) than Canada (26), along with some 31 properties in Europe. Although management has decreased the concentration on revenue further away from Magna, the key risk for Granite still relates to having about 40% of their revenue generated from one tenant that operates as a supplier to the cyclical auto industry.

  

Fortis:

In terms of criteria outlined yesterday, Fortis earns easy checkmarks on dividend yield (3.5%) and dividend growth (6% raise last year), established track records as shown with 46 years of consecutive increases, current ownership and has great geographical sales diversification for a Canadian company with about 56% of FY19 revenue generated in the U.S., and minor operations in the Caribbean. However, Fortis is a bit pricey at around 20X trailing earnings and the share price has basically been flat over the past year, failing to gain any momentum. Like any other utility operating across multiple jurisdictions, regulatory risk has the potential to materially impact business results.

Are there great Canadian companies that you think meet all the criteria and should have been included in the above five?

Picking 10 Companies to Hold for 10 Years - Part 1: Criteria

Since I haven’t written much this year, I thought I’d try something different this week and expand on a fun thought experiment suggested on Twitter by Dividend Growth Investor in late July. As per the screenshot below, DGI asked which five companies you would be willing to hold for the next ten years. Not being one to play according to the rules, I decided to reply with both my Canadian and U.S. picks.

 

Today, I wanted to break down the criteria I thought were worth considering when making my picks. Not to say that all of my picks adhere to all these criteria, but only that it’s important to establish a framework when making any investment decision. Here’s an overview of the criteria I had in  mind while tweeting my response:

 

Dividend Yield & Dividend Growth: Given how much credence I put into dividend yield and growth in my investment process, I thought this was an obvious starting point to consider evaluating any company for investment.

 

Current Ownership: I’m a fan of Nassim Taleb’s writing and one of his most influential books on me was Skin in the Game. Additionally, by limiting myself to companies I already own (or are high up on my watchlist), I shrink the universe of possible picks down to a more manageable number of businesses.

 

Established Track Record: It’s probably my pessimistic side that severely limits my ability to pick high growth companies in which to invest. To counteract this weakness, I choose to invest in established companies that have a history of generating sufficient profits over a long period of time that enable management to reward shareholders with dividend payments and hopefully increases.

 

Reasonable Valuation: With one possible exception, all of my picks are pretty reasonably valued. I do think several of the businesses I have selected are trading at a slight premium to fair values, but I’m alright with paying that premium given the low-interest rate environment in which we find ourselves.

 

Diversification: Granted, I cheated by doubling the number of companies I was allowed to pick, but diversification by industry and geographic focus were considerations for my picks. For instance, the number of global healthcare companies listed in Canada is limited to Bausch Health (formerly Valeant), which has nowhere close the global reach and importance than Johnson and Johnson.

 

Momentum: Largely as a result of recently finishing Daniel Crosby’s The Behavioral Investor, I’ve been thinking more about momentum as a factor in my investment process. Although exceptions abound, I generally think stocks that have trended upwards in the last the last year will continue to do so, barring any unforeseen obstacles.

 

Tomorrow, using the criteria established above, I’ll provide a breakdown of why I chose the five Canadian companies to hold for the next ten years.

 

Are there obvious criteria that I missed when making my selections???

Coronavirus - This Too Shall Pass?

I started to invest in stocks in the summer of 2001. It's easy for me to remember as I was working in a Chartered Accountant firm during my last coop term at University of Ottawa. Although the technology bubble had burst a year earlier, that didn't stop me from confidently and stuborronly buying Nortel and other former high-flying market favourites. I made LOTS of mistakes during my early years, and finally started to buy into some solid banks, telecommunications companies and REITs heading into 2008. For those of you too young to remember, 2008 was the start of the great recession, during which the TSX lost 35% of its value over the course of the year.

How did I handle that difficult time? After making five buys during 2007, I had no transactions at all during 2008, and then slowly dipped my feet back in the water with three buys during 2009 (the first didn't come until July). As much as it pains me to admit it, I literally amassed unopened brokerage statements each month, and rarely had the courage to look at my account online during 2008. It was simply too painful to see all that red, so I avoided even thinking about my investment holdings.

At this point, during 2020, the TSX is down just over 30% from its starting value. How am I handling the market turmoil this time around? It's still painful to open my account online and see all that red, even if there's some black and green helping to balance it now that I've been investing for almost 20 years. The consistent, material trickle of dividends hitting my portfolio also helps sooth some of the pain from my investment holdings balance being so much less than at the start of the year. Plus, I've kept up with my plan of making two buys a month (even upped it to three so far in March), and that feels good. Don't get me wrong, I fully anticipate some of my holdings will have to cut and/or pause their distributions, but I'm fine with that given the negative impact the coronavirus is having globally.

Despite the massive uncertainty that's prevalent in the world, the anxiety in my stomach from reading negative articles and posts, and the scary images on the news, I'm trying my best to keep calm, and stick to my plan. One of the first days that the markets plunged, a favourite blogger of mine, Dividend Growth Investor tweeted something to the effect of "Today your future retirement income just went on sale" (sorry, I butchered that...bad memory on my part). I related to that tweet since I have quite a bit of optimism in the world economy.

Some would say that we've never seen anything like the coronavirus, and I agree with that to a certain point. However, if you think back far enough, the world economy has survived wars, plagues, nuclear bombs, and lots of other true atrocities. To doubt that the economy will once again rebound, through the ingenuity and intelligence of billions of people who want to better their lives, is foolish. We're going through a time of great uncertainty, but ultimately, I believe in my heart, that this too shall pass.

6 Canadian Banks That Grow Their Dividends

For vacation this winter, my wife and I brought our kids to an all-inclusive resort in Varadero Cuba. It had been six years since our last trip to Cuba, and I couldn’t help noticing some of the positive changes. From small things like hot showers and a wider array of choices at the buffet, to more impactful changes like affordable, high-speed Internet access at the resort, more tourists from Europe, and many new resorts being added along the beautiful beach strip. We stayed at one of three “Melia” resorts in a row and took a train (basically a converted golf cart) to an actual shopping mall at the swankiest of the three hotels. At the mall, to my surprise, I saw a Cuban bank that likely did a great business exchanging tourists’ currency into Cuba convertible pesos. Although I was unfamiliar with the bank in question, seeing a financial institution wasn't a big surprise given the amount of development in Cuba in recent years.

Between my day job and the concentration of banks in my Investment Holdings, I think about banks quite a bit. Before the Royal Bank of Canada releases their Q1 2020 earnings on February 21st, I thought it would be a good time to take a look at the big six Canadian banks. The below table contains both market information (upper half) and operating information relating to the banks' capital levels, asset quality, profitability and funding profiles (bottom half).

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Canadian banks are incredibly complex businesses, and I recommend understanding how and where they generate their revenue/profits before making any investments. The above table is simply a starting point that might high-light some interesting links between a bank's valuation, yield, profitability and operating metrics. For instance, you might ask yourself why CIBC trades at such a big valuation discount compared to their domestic peers. However, based on their negative EPS growth over the past year, the lowest profitability in the peer group, and the bank's costly acquisitions in recent years, the valuation discount might be warranted.

Which of the above Canadian banks do you find most attractive currently?

18 Monthly Paying Canadian Dividend Growers for 2020

What are your favorite monthly traditions? One of the best days of my month happens when I use the proceeds of loan repayments from my Kiva portfolio to put $25 toward funding another loan to an entrepreneur in need. Although it took me a little over a year to build toward this goal of funding a new loan through repayments each month, now the virtuous cycle keeps repeating with minimal effort on my part rather than the joy of selecting a worthy recipient.

Another of my favorite days of the month is the 15^th, when dividends from some of the companies below magically appear in my brokerage accounts.  When the 15th passed this month, it got me thinking that it was time to post the list of Canadian companies that pay growing monthly dividends for 2020. This has traditionally been one of my most read posts in 2019, 2018,  2017 and 2016. Using the Canadian Dividend All-Star list from December, 2019, I determined the monthly dividend growers for 2020.   To be included, companies had to pay a monthly dividend, increase their distribution at least once in the last 12 months, and have a minimum 5-year history of annually increasing their payouts.  The initial screen this year yielded 20 companies before I removed Inter Pipeline that had not raised their dividend since November 2018.  I then removed Boyd Group Income Fund due to their unimpressive 0.27% dividend yield, even though the company has an excellent record of compounded growth. Lastly, I noticed the one year dividend growth for the A&W Revenue Royalties Income Fund was incorrect at 1.2%, so I fixed it to 11.2%. The remaining 18 monthly dividend growers were one more than the 17 in 2019 and 2018, down from 20 in 2017, but higher than only 12 in 2016.

The resulting 18 companies included nine real estate investment trusts (REITs). As the payout ratios and valuations of REITs are usually calculated based on funds from operations (FFO) or adjusted funds from operations (AFFO), I decided to separate the resulting list in two so as not to confuse any casual readers. For your browsing pleasure, the resulting monthly dividend payers are included below.

Here are some quick comparisons between the monthly dividend payers and the complete list of Canadian Dividend All-Stars:

- 20 of the 107 Canadian Dividend All-Stars at December 31 2019 pay dividends monthly.
- Although the average yield of all Canadian Dividend All-Stars of 3.37% is considerably less than the 18 monthly payers listed above (4.54%), the 1-year average dividend growth rate of 9.95% is significantly greater than that of the monthly payers (4.55%). 
- The average 3, 5, and 10-year dividend growth rates of the Canadian Dividend All-Stars of 10.74%, 10.37% and 10.36% are much greater than the comparable growth rates of the monthly payers 5.29%, 6.32%, and 5.99%. 

As with any other screen, the above list is simply a starting point for further research.  Clearly, a deeper dive is required given the average EPS payout ratio of 89.21%, although the trailing average P/E of 23.73X looks somewhat reasonable. As indicated on my Investment Holdings tab, I currently own four monthly paying Canadian Dividend All-Stars (A&W Revenue Royalties, Granite REIT, CT REIT and Canadian Apartment Properties). Of the remaining fifteen companies, Savaria is jumping off the page for me given their impressive dividend growth and reasonable 3.29% yield.  

If you're looking to create a virtuous cycle of re-investing monthly dividends, I think diversifying into some of the names above might be a good start. The psychological boost I get from holding a couple monthly dividend payers in my portfolio helps me on the 15th of each month to be a proud dividend growth investor!

Do you hold or are you interested in purchasing any of the 18 monthly payers?

Goals & Metrics for my Dividend Growth Portfolio

When I set my 2019 stretch goal to increase my forward dividend income by $3,300 while achieving a dollar-weighted average organic dividend growth rate of at least 5.5%, I half expected to fall short. Both aspects of the goal seemed aggressive and then I got off to a slow start to the year conducting only one transaction over the first three months of 2019. Although I can't identify a turning point, around May I decided to start deploying cash more regularly, which resulted in a personal high 24 transactions in 2019, including five sells. Three of the sells related to closing out positions that hadn't raised their dividends in years (H&R REIT, Keg Revenue Royalties and Life Storage Inc.). When the dust settled, I'm happy to report that my forward dividend income was up by $3,317 and my weighted average organic dividend growth rate was a strong 6.8%.

After thinking about it over the holidays, I chose to set an even more aggressive goal for 2020, aiming for an increase of $3,600 in my forward dividend income. Similarly ambitious, I'm targeting dollar-weighted average organic dividend growth of 6.0% in 2020. Although the dividend growth goal is less than I achieved in 2019, I think it's more of a long-term target given I don't expect to be sell any positions in 2020. Plus, I felt like I spent the last couple months of 2019 chasing dividend growth, which is something I prefer to avoid in 2020.

There are two other goals I want to work toward during 2020.
- At least one quality blog entry per month. My thoughts here are that if I keep renewing the domain name, I might as well use it regularly, rather than just as a transaction journal. For context, a quality entry would provide some benefit to readers, so this one wouldn't qualify.
- By this time next year, I want to produce an outline of how I'd fill a week without work. Not the dream week of sipping drinks on a tropical beach, but the outline of how I would spend my days when/if money weren't an issue.

Since I had some quiet time over the holidays, I calculated some portfolio metrics for 2019 that I thought would be fun to share.
- My internal rate of return on my portfolio in 2019 was 17.8%. This was lower than the benchmark return of 24.6% I get from calculating 67% of the Canadian dividend aristrocat ETF 'CDZ' and 33% of the US S&P dividend ETF SPY (the actual weights of Canadian and U.S. holdings in my portfolio). This result is consistent with my past experience that shows in years when the market is up, I tend to underperform, while I outperform in years when the market falls. I also realized my benchmark is not time-weighted with the inflows of my portfolio, which confounds the under/out performance.
- The value of my portfolio rose by 28.1% in 2019; much higher than anticipated. Canadian Apartment REIT and Microsoft were two of my best performers north and south of the border respectively.
- The dividend yield of my portfolio was 3.9% in 2019, lower than 4.2% in 2018 and 4.0% in 2017.
- Cash represented 1.6% of my portfolio at year end 2019, lower than the 2.7% at year end 2018.
- My holdings raised their dividends 47 times during 2019, with Realty Income doing so 5 times, and Kinder Morgan providing the largest percentage increase (25%).
- The only two companies in my portfolio that didn't raise their dividends in 2019 were Alaris Royalty and RioCan REIT (which I'll give away my last shares to charity in 2020).
- I ended the year with an all-time high 40 positions, up from 38 at the end of 2018. The plan is to slowly see this number decrease going forward.

Here's hoping all of you met your investment goals in 2019 and wishing you the best of luck in 2020!