This post saw its existence only after Bob contacted me to contribute to his upcoming post on top Canadian dividend stock picks for 2021. Bob is a renowned blogger known for his site Tawcan where he routinely publish articles recording his financial independence journey. He aims to reach financial independence by 2025 or earlier mainly through Dividend investing, frugal approach towards personal finance and other passive income streams.
I got so excited by the idea that I immediately responded back listing my top 3 picks and in exactly 3 minutes he shot back saying – Can you write up some analysis/reasoning behind your picks? I then took a deep breath, a step back and decided to take a measured approach to this and document it in the form of an article. Thank you Bob for this opportunity as it gave me a chance to revisit my original picks and I would admit here that the names changed a bit (..no I am not divulging the original stocks!). Our personal 2025 goal is to generate monthly passive income of $6,500 out of which $2,500 is aimed to come from our Dividend portfolio. Last year we not only beat our annual dividend target of $5,500 but exceeded to give us a head start to this year’s goal of $8,500, I publish our monthly passive income progress comprising of dividends, rents and lending interest. Since we are in our early 40s we have the flexibility to focus on growth of our portfolio but at the same time not compromising too much on planned dividend goals. Keeping this in mind, I started compiling subset of stocks out off my favourite source of information, the Canadian Dividend All Star List December’20 edition. A big shout out to them for putting together useful source of information to be used readily! Since the theme is growth, my criteria is as below.
Last Dividend Increase greater than 20%
I got me the following 9 stocks with dividend raise ranging from 22% to all the way up to unbelievable 100%! I didn’t knew that Constellation Software raised its dividend by a whopping 100% last time.
But then we can’t judge a company only by its last raise, as personally I like to buy and hold for a long long time, if not forever! And this made me apply the next filter.
Last Dividend Increase within last 1 year
Even though my focus is growth I won’t like to own a stock which do not increase the dividend at least once a year. Even if Constellation Software increased the dividend by 100%, it was nearly 9 years ago! I am not saying it is not a good investment, but it just doesn’t fit my scheme of things. And for the same reason, neither does Altius Minerals nor Osisko Gold Royalties, whose last raises were more than 1.5 years and 3 years ago respectively. I am looking for companies which have good dividend growth rate and more so, consistent dividend growth track record. We own a bit of Canadian Information Technology Index ETF – XIT in our RRSP account, which holds Constellation Software shares as their second highest holding (at about 24%), so we do hold CSU indirectly!
Hence I removed them leaving me with six companies to proceed with. I went back looking at their dividend growth rates more closely by expanding the growth rate to three years instead of just looking at the last raise.
Last 3 Years Average Dividend Increase greater than 15%
If you look at the top four stocks, they all have impressive last dividend (and one year average) raise greater than 45% & three year average greater than 30%, leaving bottom two behind by a considerable margin. Again not that anything is wrong with them but for now I will go ahead with top four stocks and look at few other metrics.
At this point I would like to mention that Alimentation Couche-Tard is one of our biggest holding in my TFSA account and I recently added more when it dipped 10% due to an acquisition news. XIT (Canadian Information Technology Index ETF) also owns about 2% of Enghouse Systems shares out of its total holding and as I mentioned earlier, we have this ETF in our portfolio, I can say we indirectly hold some ENGH as well!
Our entire portfolio holdings can be found at this link, and you can make a copy of the google sheet and reuse if you want. It automatically populates the Latest Price, Annual Dividend, Dividend Yield and Projected Annual Dividend for you if you provide the TIcker & Number of shares you hold.
Target Price & Analyst Ratings
While you should always take analyst ratings and recommendation with a pinch of salt, as they may have their own ulterior motive behind their analysis, it does provide a fair idea if you look at quite a few of them. CDASL sheet provides both Analyst Ratings & Average target price for all stocks and also tells number of analysts it considered for the ratings. Additionally I also grabbed the target price from marketbeat website for comparison purpose and it showed some significant deviation from CDASL list and I don’t know why, could be source of information.
As per CDASL, the Target price and Upside for Quebecor Inc is $37.95 and 24% respectively while MarketBeat website states – 4 Wall Street analysts have issued ratings and price targets in the last 12 months. Their average twelve-month price target is $37.57 (upside of 22.8% at current price). The high price target is $40 and the low price target is $35 and there are currently 1 hold rating and 3 buy ratings for the stock, resulting in a consensus rating of Buy. Current dividend yield is 2.61% with dividend payout ratio of about 38% and its EPS has been growing at 34% a year over the past five years. All the metrics reviewed so far are favourable but I personally feel it is a still a provincial player with limited geographical reach, with mostly no intent or appetite to expand elsewhere. This makes it a narrow moat company and hence I will pass for now but will monitor it.
As per CDASL, the Target price and Upside for Kirkland Lake Gold Ltd is $60.34 and 22.8% respectively while MarketBeat website states – 4 Wall Street analysts have issued ratings and price targets in the last 12 months. Their average twelve-month price target is $79.75 (upside of 62.3% at current price). The high price target is $95 and the low price target is $68 and there are currently 4 buy ratings for the stock, resulting in a consensus rating of Buy. Current dividend yield is 1.95% with payout ratio of about 21% and during last three years, Kirkland Lake Gold achieved compound earnings per share growth of 72% per year. Its total debt to equity ratio is 0.5% meaning they have negligible debt and hence considering all the metrics reviewed so far, they makes it my number one pick of the year. I don’t own it but would like to add it to my registered account as soon as I get an opportunity. More information about them can be found at their investor’s page here.
As per CDASL, the Target price and Upside for GoEasy Ltd is $98.67 and 5.6% respectively while MarketBeat website states – 3 Wall Street analysts have issued ratings and price targets in the last 12 months. Their average twelve-month price target is $107 (upside of 14.5% at current price). The high price target is $122 and the low price target is $92 and there are currently 3 buy ratings for the stock, resulting in a consensus rating of Buy. Current dividend yield is 1.93% with payout ratio of about 30%. GoEasy’s earning per share has grown 30% each year, compound, over three years with about 25% of insiders holding the stock, making it a stock to buy and hold for long term and is second on my list to add more. We already hold this in TFSA since last 1 year and it is up by 50%, and when opportunity comes up I plan to add more to our position. More information about GoEasy can be found on their investor’s page here.
As per CDASL, the Target price and Upside for Agnico Eagle Mines Ltd is $97.07 and 8.7% respectively while MarketBeat website states – 5 Wall Street analysts have issued ratings and price targets in the last 12 months. Their average twelve-month price target is $117 (upside of 31.1% at current price). The high price target for AEM is $140 and the low price target for AEM is $95 and there are currently 2 hold ratings and 3 buy ratings for the stock, resulting in a consensus rating of Buy. Current dividend yield is 2.09% with payout ratio of about 42% and debt-to-equity ratio is 31% and based on overall metrics and analyst recommendation, I am putting this third on my buy list for this year. More on why to invest in Agnico can be found on their investor’s page here.
To conclude, my criteria revolved around dividend growth and while it may not be the best approach to compare or judge a company, it surely is one of the yardstick for a company to be financially sound and reliable. While there is no guarantee that past performance or results will repeat itself, a low payout ratio and good EPS growth does further indicates potential in future dividend raises. Below is the last chart I present from morningstar website, which compares the top four companies I discussed above. The comparable is for 10K growth over the period of 5 years and as you can see – Kirkland Lake Gold Ltd, GoEasy Financials & Agnico Eagle Mines leads the race.
Happy Investing and Good luck with whatever you buy!
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