Wednesday, January 22, 2020

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 15th, 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 20192018,  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?

Friday, January 10, 2020

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!

Wednesday, December 11, 2019

10 Canadian Companies Providing Dividend Growth Guidance

Two years ago, I posted a summary of Canadian companies that provide dividend growth guidance. I find this guidance useful as it helps me assess the capital allocation plans for companies, introduces a soft control by which to judge management's actions, and assists me in projecting the organic dividend growth rate of my portfolio for the next year. 

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 yesterday (December 10th), they raised their dividend by 9.8% (slightly below their previous guidance of 10%), and said that after 2020, dividend growth was projected to be in the 5% - 7% range, in-line with their distributable cashflow growth projections. 

This downward adjustment to dividend growth guidance seems to be the norm lately for Canadian energy producers and pipeline companies. Given this trend of adjusting dividend guidance downward, and since it's the point in the year that dividend growth investors think about setting their dividend income goals for next year, I thought it would be an opportune time to update my list of Canadian companies providing dividend growth guidance. 

Please consider the table below a starting point for further research and let me know of any other Canadian companies that provide dividend growth guidance. I'll gladly update the table with your input. Lastly, I almost included BCE Inc. as management has stated their goal to grow their dividend by 5% next year. However, given management's language of the 5% dividend growth was pretty vague, I opted for the conservative approach of not including them below. 

TC Energy Corp (TRP)
Dividend growth of 8-10% through 2021, 5-7% after 2021
Enbridge Inc (ENB)
Dividend growth of 5-7% per year after 2020
Emera Inc (EMA)
Dividend growth of 4-5% per year through 2021
Telus Corp (T)
Dividend growth of 7-10% per year through 2022
Capital Power Corp (CPX)
Dividend growth of 7% per year through 2021, 5% in 2022
Fortis Inc (FTS)
Dividend growth of 6% per year through 2024
Algonquin Power (AQN)
Dividend growth of 10% per year through 2021
Brookfield Infrastructure Partners (BIP.UN)
Annual distribution increases of 5-9%
Brookfield Renewable Partners (BEP.UN)
Annual distribution increases of 5-9%
Brookfield Property Partners (BPY.UN)
Annual distribution growth of 5-8%

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

Wednesday, December 4, 2019

Tanger Factory Outlet Centers - Learn from my Mistakes

One of the more useful aspects of keeping my Transaction Journal is that when an investment goes south, I can go back and see what my reasons were for initiating or adding to a position. With Tanger Factory Outlet Centers ("Tanger") down 29% this year, it seemed like an opportune time to determine where my decision making could be improved before investing in another company in which I have lost about 40% of my initial investment.

Although I don't have a Transaction Journal entry for my initial establishment of a half position in Tanger on March 10, 2017, it was at $31.00 per share. That meant the starting yield was 4.2%, before management boosted the dividend by 5.4% in April 2017. I remember being interested in Tanger based on my past experience covering US-retailers at work, and having visited a number of Tanger outlet malls. The locations I visited were always busy, fully occupied by interesting stores, leaving positive impressions. The company had also partnered with RioCan REIT to open a location in Ottawa in 2016. My calculations based on some old FFO numbers suggests I initiated a position at a P/FFO of about 13X.

Based on the above, I can see a couple of risks that are common across other of my investments. Firstly, the 4.2% yield with an imminent dividend hike a month later would have been tempting. Add to this that I had a very limited, albeit positive view of the company based on my personal experiences. The kicker was likely the relatively cheap valuation, as I've always been reluctant to pay more than 15X earnings/FFO for companies/REITs.

Next is my entry from June 2017:

June 21, 2017
Buy - Added to half position of Tanger Factory Outlet Centers (NYSE: SKT) at $24.98
Reasons: With the valuation sitting around P/FFO of 10X, I think this discount mall REIT is one the biggest bargains I see in the US markets. The 5.5% yield, proven management team, and history of distribution growth throughout different points in the economic cycle all led me to add to this position.
Risks: Even though Tanger was down 3% when I bought for no reason, I do think it will go lower with any bad news/results in coming months. Chose to add now given my plans to discontinue paying the $30/quarter to my discount broker to give me a better CAD/USD exchange rate. Lastly, although I think the "death of the mall" rhetoric is overdone, I don't expect strong growth out of Tanger in 2017 given secular headwinds.

At the risk of sounding very self-critical, there are a couple of huge red flags. The fact I'm investing so that I can take advantage of a decent exchange rate to get the most out of a $30 fee; it's sad I'm stressing over sunk costs when I should be worried about capital preservation. Secondly, I seem to avoid asking myself why the company's stock is down almost 20% from my first purchase, and instead celebrating the cheaper valuation. It's odd that I expect the stock will fall lower, and growth won't happen in 2017, yet throw more money into the investment. On the plus side, at least I rightly identified those two risks.

Now for my last entry from October 2017.

October 27, 2017
Buy - Completed my position in Tanger Factory Outlet Centers (NYSE: SKT) at $23.00
Reasons: JC Penney cut their outlook for 2017 and I was able to purchase shares in Tanger at a ~5% discount to yesterday's price (which was a good deal at about P/FFO of 10X) in order to complete my position. Dual kickers: JC Penney isn't even a tenant of Tanger and by buying today, I will benefit from owning before the shares trade ex-dividend on Monday.
Risks: My bet is that Tanger will continue to trend downward in the short-term, and I'll likely miss out on buying at the bottom. That said, I can't time the market, and I view Tanger as a long-term holding. The way mall stocks are trading lately, the death of bricks-and-mortar retail seems to be imminent, even though online retail only accounts for about 10% of total US retail sales.

Buying before a company's stock goes ex-dividend continues to be a problem for me. This is clearly an issue of chasing pennies at the expense of losing dollars. Again, I foresee the stock falling lower, but am not prepared to wait for that to happen. My bet is that I had excess funds kicking around my RRSP that I wanted to invest before the end of 2017 in order to help meet my forward dividend income goal. Lastly, I throw in the 10% fact to justify my need to increase a falling position and annoy present me in the process.

Taking a step back, based on my entries, there are a couple lessons I can learn from my experience with Tanger.
- Investing in a company with a cheap valuation, without a thesis for what could happen in the future to raise the valuation, isn't a good idea. Cheap companies are sometimes cheap for a reason. My recent experience of paying a little more for great companies (i.e. Algonquin Power) shows I am capable of change.
- Buying shares prior to an ex-dividend date has no net benefit. I have to give up on chasing those pennies in order to save dollars.
- I have to work on my desire to keep myself heavily invested, with low cash amounts in all three of my investment accounts. It's sometimes alright to let cash sit idle for periods of time.
- Before adding to positions that are going down, I should revisit my initial investment thesis instead of simply justifying my actions as "averaging down". There should be valid reasons for continuing to invest in a company, not simply to complete positions.
- I have to stop generalizing my personal experiences and comfort level with a brand. I'm one of millions of Tanger customers, and my experiences are totally irrelevant to their success as a company.

Here's hoping you might be able to learn from my mistakes and avoid them yourself.

Monday, November 25, 2019

Is Enbridge's Dividend Sustainable?

Is Enbridge’s dividend sustainable? When @johnyboy1853 asked me that on Twitter at the end of September, I thought it was an excellent question. Afterall, the company’s dividend payout ratio of EPS was 108% in 2017, 133% in 2018, and 101% over the last four quarters ending September 30, 2019. Given Enbridge produces more dividend income for me than any other investment holding, a deeper dive was merited.

As scary as the payout ratios listed above look, I wanted to focus more on cashflows. Looking at the 2018 cashflow statement, the CFO of $10.5B and asset sales of $4.4B easily cover the $6.8B of CAPEX and $3.8B of dividends (common and preferred). However, over the last four quarters, the CFO of $9.9B and $2.5B of asset sales barely outpaced the $6.2B of CAPEX and $6.1B of dividends.

Although the past earnings and cashflows are important starting points to understand Enbridge’s dividend sustainability, investors should focus on the future to determine if Enbridge can keep affording to boost dividends by 10% in 2020. Looking at consensus estimates, analysts expect Enbridge to generate CFO of $10.8B in 2020, spend $5.5B on CAPEX, and pay out dividends of $6.7B. The $1.4B gap between outgoing cash and CFO would have to be made up via asset sales or debt issued. Enbridge had a target to sell $8B of non-core assets in 2019, so $1.4B of non-core assets would likely be very achievable for 2020.

Beyond the numbers, the sustainability of Enbridge’s dividend will ultimately be determined by the long-term success of their business model. With a large and diversified asset base, and pipelines throwing off predictable cashflows, there are reasons for optimism. Some key risks include the heavily regulated environment in which the company operates, reputation risks when spills occur, as well as Enbridge’s still highly leveraged capital structure (debt to EBITDA well over 5X at September 30, 2019).

Obviously my crystal ball is murky when it comes to Enbridge’s dividend sustainability. I did find it interesting that last December during their investor day, Enbridge’s management talked about growing their distributable cashflow by 5-7% after 2020. That seems like reasonable growth range given that TC Energy, a similar company, recently gave their long-term dividend growth range of 5-7% after 2021 during their investor day presentation. 

Do any of you feel like Enbridge won't be able to sustain their dividend for the next five years?