Wednesday, December 22, 2021

7 Canadian Companies Providing Dividend Growth Guidance

In 20172019, 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, specifically when it is expressed as a percentage, 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 2022. 

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. Lastly, the percentage beside the company's ticker symbol in brackets is the amount of the 2021 dividend increase.

TC Energy Corp (TRP - 7.4%)                     
Dividend growth of 3-5% (down from 5-7% previously)
Emera Inc (EMA - 3.9%)
Dividend growth of 4-5% per year through 2024
Telus Corp (T - 5.2%)
Dividend growth of 7-10% per year through 2022
Capital Power Corp (CPX 6.8%)
Dividend growth of 5% per year through 2025
Fortis Inc (FTS - 5.9%)
Dividend growth of 6% per year through 2025
Brookfield Renewable Partners (BEP.UN - 5.0%)
Annual distribution increases of 5-9%
Brookfield Infrastructure Partners (BIP.UN - 5.2%)
Annual distribution increases of 5-9%

For those of you with a sharp eye, you may notice two companies missing from last year's list. Enbridge and Algonquin Power & Utilities Corp. Sadly, both companies moved away from providing percentage-based dividend growth guidance in their recent investor day presentations. Enbridge indicated that over the next three years, their dividend growth will be "up to level of medium-term DCF (distributable cash flow) / share growth". On the same slide of the presentation, the company indicates that they expect DCF growth per share to be in 5 to 7% range over the same time period. I chose to drop them from the above table as including the qualifier "up to" and knowing the company makes some subjective judgements in calculating their DCF each quarter. Similarly, Algonquin moved away from providing the crystal clear 10% dividend growth guidance, to indicating that their dividend growth will be based on "Sustainable long-term payout ratio target of 80-90% of normalized earnings". It is worth noting that the company expects their adjusted EPS growth from 2022 - 2026 to be between 7-9%. Again, given the company can wiggle anywhere within a 10% band of "normalized earnings" (another non-GAAP term), I don't feel comfortable including them in the above table.

As more companies start to move away from providing clear, percentage based dividend growth guidance, I may have to draft another entry to cover some companies who refer to a special ratio, or another less structured way to provide guidance on their distribution growth. It's definitely sad to see Algonquin and Enbridge move away from providing simple dividend growth guidance. 

Sunday, December 12, 2021

Never Selling a Stock

Despite having my annual 'Canadian Companies that Provide Dividend Growth Guidance' post almost complete, I decided to switch course and post about a tweet that has been caught in my mind for the past two weeks.

Before explaining the benefits and drawbacks of never selling a stock holding, I can't recommend highly enough following The Conservative Income Investor's blog, twitter and Seeking Alpha page. I'd go as far as to guess that subscribing to Tim's Patreon would likely pay literal and figurative dividends. 

The most obvious benefit of never selling a stock is nicely summed up in Tim's tweet: the lost return on a potential winner could not only be devastating for your portfolio's prospects, it could be an error of commission for which you never forgive yourself. Having sold a position in Home Depot in 2012 for $63 (representing an ~150% gain after five years of holding the company), it's been heart-breaking to see it march up to the current price of $415. Had I not sold, Home Depot would represent my largest position, and would have been a steady gainer and dividend grower over the past nine years. Sadly, I've sold many other companies that went on to produce huge gains for more patient investors than me. 

A couple other benefits that come to mind if one chooses not to sell any holdings are the time savings from not worry about when to sell, no taxes would be due if investments are held outside of registered accounts, no transaction costs from selling, and having a more diversified portfolio assuming you continue to buy shares in other companies.

The biggest drawback I think to following Tim's advice is that your portfolio holdings would balloon to a number that would make it difficult, if not impossible, to monitor your various investments. Having cut my number of holdings down from 40 to 37 in the past year, I still hold too many positions to monitor each effectively. The other material downside I see to never selling is continuing to hold companies that changed their strategic direction to something you don't support or have an opinion on. As an example, if I continue to hold the shares of Orion Office REIT that were spun off after the VREIT and Realty Income merger, I'd be making a bet on the recovery of the commercial office space market in the United States, something I feel particularly ill-equipped to do. 

Other drawbacks in never selling shares is companies you hold include not being able to take advantage of tax loss harvesting (assuming positions are held in unregistered accounts), having position sizes that don't reflect your current convictions, and potentially lacking liquidity to take advantage of market displacements. 

Although I haven't come to any conclusions as to whether I'll start following the "never sell" advice from the Conservative Income Investor's tweet, it's something I'll continue given the pain and lost return of selling a big winner is difficult to overcome.