Tag: DividendIncome

At the beginning of 2021, Bob (..from TawCan.com) approached me to contribute for an article which he was working on to list down best Canadian dividend/growth stocks. The ask from me and 17 other Dividend Growth Investors (DGI) was simply to pick our top 3 stocks and provide reasoning! His article took a great shape and became a go to post for beginners to find good stocks, it can be read here – Best Canadian Dividend Stocks. It was my first time collaborating with such masters and in order to come up with my picks, I took a methodical approach which is documented here in my own blog here at 2021 Top 3 Picks – Canadian Dividend Growth.

My top 3 picks for his article back in Jan’21 were GoEasy Financials, Kirkland Lake Gold Ltd & Agnico Eagle Mines and my selection was purely based on dividend growth data for recent past years (one and three). The last dividend raise for Agnico was astonishing 75% while Kirkland raised theirs’ by 50% and GoEasy gave a handsome 45.16% raise! All 3 companies dividend growth were amongst the top and it is worth mentioning that since then GoEasy again raised their dividend by whopping 46.67%. Even if you look at their average three years dividend growth percentage, they are quite envious. In terms of price appreciation, GoEasy lead the pack by YTD increase of 92% (163% in last 1 year!), Kirkland by 1% & Agnico decreased by 25%. If I had invested $10,000 in each of these 3 stocks, my value at the time of writing would have been about $37,000, an increase of 23%. It is a good return by all means but if I had to redo this, I wouldn’t choose 2 gold stocks. Gold miners/stocks have suffered in the last one year due to declining gold prices from the peak of Aug’20 amidst pandemic uncertainty by almost 25%. A bank or an utility company would have been a better choice. For the records, I only got a chance to buy GoEasy (..talk about getting lucky!) and we have doubled our money so far. There was also an announcement coming out in late Sept that Agnico is buying Kirkland Gold for $13.5 billion!

Bob contacted me again few weeks ago and this time he wanted to work on a similar article, but focusing on US based stocks! Again I am both nervous and excited as these exercises are quite enriching and a great learning experience. US stock exchanges – NYSE & NASDAQ are top 2 exchanges in the world in terms of market capitalization while Canada’s own TSX sits at the distant 9th spot. These two US exchanges lists more than 6500 companies with about 35 trillion dollars (give or take) market valuation; TSX in comparison is about 2 trillion dollars only. Given these many stocks to pick from, the task is quite daunting and intimidating but I recall long time ago someone telling me a very basic thing about stock selection – Look around for products/services you use daily and buy the companies that provide them! The idea is quite fundamental yet very strong, imagine a company manufacturing your toothpaste or supplying you electricity/gas or medicines you need or the phone you use or car you drive. These companies are so penetrated in everyday life that it is hard for them to go out of business, even if the consumer usage habit or the rule changes, these companies will adapt and innovate to remain in the business. So.. my approach for this exercise is based on this principle and hence is quite simpler than methodically weeding out stocks based on their fundamentals or dividend data. I am just going to pick 3 different sectors and talk about my favourite stocks from each of them. For now I am going to go with Technology, Financial & Pharmaceutical sectors and these stocks I bet are worldwide household names, especially in ours!

Technology – Apple

If you haven’t heard about Apple Inc then you are probably from a different planet! Apple was founded on 1-Apr-76 and they started their journey building personal computers (..called Macintosh back then) and back then spawned into Camera, Gaming console, Clothing line (wow.. can you believe it!) & iPod to survive! In present world they sells Macbook, iPad, iWatch, Airpods, etc but rules the consumer electronics space worldwide with their iPhones. They have sold nearly 2 billion phones so far with 1 billion active users currently and recently launched the latest iPhone 13 model. In 1985 Steve Jobs was oust from Apple as CEO but was brought back in 1997 when the company was in dire financial situation. And just in 14 years Jobs turned the company’s fortune around with his vision, dedication and ruthless leadership launching one successful product after another focusing on design aesthetics and ease of usage; and in 2011 Apple had more cash than the US treasury!

A successful company needs a deep pocket to spend on innovation and research, so they keep churning out unique product or service for its customer base. As per Boston Consulting Group, Apple singlehandedly ruled the innovation landscape since 2005 till 2021, not under its hometurf of Technology & Telecommunication sector but also amongst all other sectors.

Apple is also the biggest company in the world in terms of market-cap and the first company to attain every market-cap milestones so far – be it $500 billion or $1 trillion or $2 trillion and now sits at the top with about $2.38 trillion valuation. Apple is followed by Microsoft, Google, Amazon & Facebook in terms of companies valuation and in last 5 years, Apple beats them all in price appreciation of about 400%, quite a returns on investment for its shareholders! The dividend yield is 0.62% with dividend payout ratio of 27% and the last 5 years dividend growth rate is 9.30%

In our home, in total we possess six devices and few more which aren’t used anymore. Even if you go outside and look around, you will surely notice every other person using an iPhone, so with such widespread usage it only makes sense to own a piece of this mammoth of a company!

Financial – Visa

VISA Inc is another such company which you will find in almost every wallet or pocket in the world! It is an American multinational financial services corporation and one of the world’s most valuable companies, which facilitates electronic funds transfers throughout through Visa-branded credit, debit and prepaid cards. Visa do not issue any card by themselves, rather they provides financial institutions with Visa-branded payment products that they then use to offer variety of cards. They IPO’d in 2008 and back then it was the largest IPO in history at $17.9 billion! Visa have about 2.5 billion cards boring their brand name earning transaction fees for them every time their card is swiped/tapped/inserted anywhere and as per 2020 data, a whopping $8.8 trillion transactions were processed by them with net revenue for Visa of $22 billion!

Visa’s competitors are Mastercard, American Express, Discover and many other small players but their main challenger is Mastercard. You will find plenty of articles all over the internet comparing these two companies and choosing one over the other; but my leaning is more towards Visa considering widespread usage in our household. I recall my first debit card had a VISA logo on it and I wondered why as the card belonged to a local bank. Looking at all our current cards, the count is like 8-2 in favour of VISA and the ones belonging to Mastercard are Costco & Walmart cards, with which they have contract! In the last 5 years, Visa stock price appreciated about 170% with dividend yield of 0.58% with dividend payout ratio of 25% and the last 5 years dividend growth rate is 18%

Covid changed the way world shop and pays which in all likeliness is going to stick around now. More and more people are shopping online and if not, at least avoid using cash and this change in behaviour is obviously boosting card payment and hence increase in related transaction fee. More so I read somewhere, the pandemic boosted debit card usage a lot by consumers who preferred cash earlier, and VISA’s debit card programs and penetration is bigger as compared to Mastercard and hence I believe VISA is a good choice.

Pharmaceutical – Abbvie

Abbvie Inc is an American biopharmaceutical company spinned off Abbott Laboratories in 2013 and hence is a relatively young company. After the split, Abbott takes care of medical devices, diagnostic equipments & nutrition products and AbbVie operate as a research-based pharmaceutical manufacturer & seller. Abbvie’s infamous product Humira (..which is used to treat Rheumatoid arthritis, Psoriatic arthritis and Crohn’s disease) is the number one selling drug in the world since 2015! Last year it brought in nearly $20 billion revenue for Abbvie while the second highest selling drug Eliquis made nearly $10 billion for their parent company, so you can judge how mammoth Humira is for Abbvie! While patent for Humira is expiring in different parts of the world, US patent is going to expire in early 2023 and until then there is no doubt Humira will rule Abbvie’s revenue charts and even a bit after that as it may take a while before other companies catchup and brings in biosimilars in the market. Abbvie majorly have 16 products selling in international market and many others in either research pipeline or acquisition plan, last year itself the company acquired Allergan, manufacturer of Botox for about $63 billion.

Abbvie have been consistent with the return on investment for its shareholders, ever since its inception. In last 5 years, Abbvie stock price appreciated about 80% with a juicy dividend yield of 4.79% with dividend payout ratio of 49% and the last 5 years dividend growth rate is 18%. With this kind of yield and a solid past record, Abbvie qualify as a long term stock to hold, at least for me.

Just like Apple & Visa products that are widely used in our household by choice, unfortunately Abbvie was also a company whose product I used in the past! Probably readers know, I am a Crohns disease patient (..or shall I say veteran!) and I have used Humira for more than 5 years.

Key Metrics

Below are some of the metrics I collected for readers from various websites and may be a bit off or stale, so please do check the latest. The focus is mainly on past price appreciation and dividend growth.

Also below is the chart showing Apple, Visa & Abbvie growth in last 5 years.

Conclusion

US market is so huge that picking just 3 stocks is like looking for a needle in a haystack even for professional analysts. I am no analyst and hence I chose 3 safe and boring blue chip stocks with proven track record and dominant position in their respective field. They all are well positioned to survive and grow for at least next few decades and even if the market demand, usage pattern, local rule changes or if they encounter a disrupter, they are all well capable to adapt or acquire to changing landscape. They all are relatively safe companies with no surprise elements and shall benefit their shareholders with double-digits return over years to come along with increased dividends.

We currently own a little bit of both Apple & Abbvie under our dividend portfolio and shall add Visa as well when we get a chance.

Happy Investing and Good luck with whatever you buy! 😊

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!