What should a dividend growth investor buy in 2024? What a fascinating situation we are in; still plagued with high inflation—although it slowed down a bit in late 2023, it went back up in the U.S. and possibly Canada in December—and with high-interest rates, yet we might not end up in a recession, perhaps a soft landing. Makes it difficult to choose stocks…
Labor shortages will continue as we finally hit the wall with our aging population. More and more people retire while not enough young folks seek jobs to replace them. The search for qualified workers will support a form of inflation as unemployment rates should remain low despite their recent modest increases.
Rising salaries and low unemployment rates force companies to become more productive and efficient. When faced with rising costs, companies don’t sit around and complain. They go back to the drawing board and find ways to become more efficient. In the next two years, the world will belong to those who focus on productivity. This should be the cradle of the next bull run.
The obvious! We fear a market crash that will take years to recover from. It wasn’t fun in 2022, but we somewhat kept the hope that the FED would finally stop increasing interest rates. It did in 2023, but we can’t rejoice just yet.
While interest rate hikes have stopped, and there is talk of reduction sometime in 2024, the current higher rates will affect both consumers and companies who need to borrow, or refinance debt, for a while still. Not to mention recent disruptions to shipping routes through the Red Sea and Suez canal raising the possibility of increasing inflation.
Therefore, the sequel to this movie may very well look like what we endured in 2008, when it took about four years to fully recover from the crash. Investors who were in their accumulation phase were smiling as they got the deal of the decade. But for retirees, it was another story.
Based on this experience, I suggest retirees keep a cash reserve of 18 months to 2 years’ worth of your retirement budget. You can then withdraw from your cash reserve without being too nervous about the stock market. Your dividends should be deposited in that cash reserve. Depending on the pace of your withdrawals and the yield generated by your portfolio, this strategy will extend the lifespan of your cash reserve up to 3-4 years (maybe more!). The cash reserve helps you sleep well at night on top of providing you with extra flexibility.
Don’t overhaul your investing strategy and start over. Adjust your portfolio to ensure you are well-invested and poised for what’s coming. A potential long bear market affects investors who are invested and those with cash on the side. Here’s the playbook.
Invested investors (like me!):
Cash on the side investors (sitting, waiting, wishing…)
You could wait for years and never get today’s price again. Instead:
The goal of this strategy is making sure your portfolio thrives no matter if you invest right before a market crash, or just as we embark another 5-year bull market.
A full podcast series on How to Invest 2024 is available to you now! Get your plan for the year ready!
I first screen stocks by using a simple but greatly effective tool called the “dividend triangle”. I look for leaders in their markets with strong growth vectors, i.e., companies with the ability to increase their sales and also show profit growth. Finally, I look for companies that are that will increase their dividend year after year. This is why the first three metrics in my filter, representing the dividend triangle, are:
If you are concerned about market uncertainties, your best bet is to rely on companies with a strong dividend triangle. They won’t let you down during the next recession and will likely recover faster upon a market correction. I’m not the only one saying this, even Vanguard established that dividend growers outperform the market with less volatility.
Using the dividend triangle gives you a good start, but that’s far from being enough. First, 5-year metrics only tell you what already happened. This is not a guarantee for the future. To have a better idea of where to invest in 2024, I look at the 5-year trend for other metrics in addition to the dividend triangle.
Look at 5-year trend for following metrics:
Any jump or sudden drop in the metrics needs to be explained. Studying trends tells me which quarterly earnings report to dig through to find answers to my questions. Once this is done, I’m ready to write my investment thesis.
Now, let’s look at some of my top picks for 2024. Enter your email address here to learn about six of my favorite stocks for 2024:
Many factors will have an influence on the market this year. However, the best way to invest remains the same: having a straightforward strategy!
The post What Should a Dividend Growth Investor Buy in 2024? appeared first on The Dividend Guy Blog.
In September of 2017, I received slightly over $100K from my former employer, representing the commuted value of my pension plan. I decided to invest 100% of this money in dividend growth stocks.
Each month, I publish my results on those investments. I don’t do this to brag. I do this to show my readers that it is possible to build a lasting portfolio during all market conditions. Some months we might appear to underperform, but you must trust the process over the long term to evaluate our performance more accurately.
This month, my update is full of trades!
Let’s start with the numbers as of January 9th 2024 (before the bell):
Original amount invested in September 2017 (no additional capital added): $108,760.02.
Total return since inception (Sep 2017-Dec 2023): 120.34%
Annualized return (since September 2017 – 76 months): 13.29%
SPDR® S&P 500 ETF Trust (SPY) annualized return (since Sept 2017): 12.74% (total return 113.7%)
iShares S&P/TSX 60 ETF (XIU.TO) annualized return (since Sept 2017): 9.03% (total return 72.89%)
This is the time of the year where I make most of my trades! You probably saw them coming if you followed last month’s update, so there should not be any big news ?.
Both companies suspended their dividend during covid and they were the two exceptions I made in ages to my hard rule “sell upon a dividend cut”. As I mentioned before, I still believe in both businesses’ models, but it’s time to let go of those two small holdings and improve my portfolio’s health and yield!
Sold 200 CAE.TO @ $28.11
Sold 45 DIS @ $94.74
During my yearly review, I always make sure I’m not over exposed to any single stock. Apple and Alimentation Couche-tard were above 10% of all my portfolios (not just my pension plan) and I thought of selling a few shares of Microsoft to create more capital to invest in my new U.S. ideas.
Sold 60 ATD.TO @ $74.36
Sold 35 AAPL @ $197.70
Sold 8 MSFT @ $365.34
Stella-Jones has been on my radar for a while but I didn’t have liquidity to add it to my portfolio. The combination of the sales of CAE and ATD created enough capital to open a decent position.
With its main customers being utilities and railroads, the company will continue to obtain sizable orders and get paid. In 2023, the company reported impressive numbers as demand for infrastructure products are surging. Management recently announced they were looking for more acquisition targets. With 15 facilities in Canada and 25 on U.S. soil, the company can deliver its products promptly. The company has proven to be a defensive pick during the pandemic. The “lumber COVID-hype” is over, but SJ remains a solid business and benefits from multiple growth vectors. While residential construction may slow down due to higher interest rates, the need for more infrastructure and major projects continues to drive sales higher. Management mentioned they were seeking acquisition targets and we like that! For their latest quarters, a portion of SJ’s growth was fueled by recent acquisitions and margin expansion.
Bought 146 SJ.TO @ $73.16
Automatic Data Processing is the largest US-based payroll services provider. The company enjoys a sticky business model where most corporations will use ADP services for years. Once your payroll setup is rolling, why would you change it? Tight labor markets have worked in ADP’s favor, leading to improved financial performance with a rebound in new bookings. ADP’s recent efforts to increase investment in existing platforms and sales capacity should help boost growth.
ADP exhibits a very strong dividend triangle with a 5yr. annual revenue growth rate of 6.05%, EPS growth of 11.85% and dividend growth of 13.70%. The company is close to becoming a Dividend King with 48 consecutive years of dividend increases. While ADP has continued to grow, its stock price has hovered between $200 and $250 per share for the past two years. Its 5-year average PE ratio is 31.48 while its current forward PE is at 24.45. There is nothing like buying a great company at a good price.
Bought 38 ADP @ $235.54
You heard me talk about LMAT several times over the past few years. I finally got some money to initiate a small position. Note that it’s a small company and therefore, I didn’t invest in this one massively.
Since debt isn’t a popular topic these days, I decided to go with a small cap with a stellar balance sheet. LMAT is a niche company selling a dozen products being used in surgeries on veins and arteries outside of the heart. In other words, they deal with hospitals and surgeons who don’t have much time to shop around and change suppliers. Most of its products are #1 or #2 in their respective markets. The company doesn’t hesitate to grow by acquisition or to spend more on hiring sales representatives. You can rest assured your interests are aligned with management as M. LeMaitre owns more than 10% of all shares.
Bought 100 LMAT @ $56.28
I have discussed more details about my trades in this YouTube video:
Slowly but surely, the portfolio is taking shape with 10 companies spread across 7 sectors. My goal is to build a portfolio generating 4-5% in yield across 15 positions. I will continue to add new stock monthly until I reach that goal. My current yield is 4.98%.
This move increased my exposure to utilities, but I just could not let this opportunity pass by without taking action. Down the road, I’ll likely sell some utility stocks and cash a gain. But in the meantime, I don’t mind seeing this sector taking more and more space in my Smith Manoeuvre portfolio. Since I operate a leveraged strategy, I must be more aggressive with many investments. CPX is not only a great utility with good growth vectors with natural gas assets and renewable energy sources, but its yield fits perfectly in an SM strategy.
Here’s my SM portfolio as of January 9th, 2024:
Company Name | Ticker | Sector | Market Value |
Brookfield Infrastructure | BIPC.TO | Utilities | $969.00 |
Canadian National Resources | CNQ.TO | Energy | $961.84 |
Capital Power | CPX.TO | Utilities | $572.10 |
Canadian Tire | CTA.A.TO | Consumer Disc. | $427.71 |
Exchange Income | EIF.TO | Industrials | $1,029.38 |
Great-West Lifeco | GWO.TO | Financials | $738.31 |
National Bank | NA.TO | Financials | $609.54 |
Nutrien | NTR.TO | Materials | $967.07 |
Telus | T.TO | Communications | $919.98 |
TD Bank | TD.TO | Financials | $1,216.46 |
Cash (Margin) | -$3.51 | ||
Total | $8,407.88 | ||
Amount borrowed | -$8,000.00 |
Let’s look at my CDN portfolio. Numbers are as of January 9th, 2024:
Company Name | Ticker | Sector | Market Value |
Alimentation Couche-Tard | ATD.B.TO | Cons. Staples | $23,925.98 |
Brookfield Renewable | BEPC.TO | Utilities | $10,534.14 |
CCL Industries | CCL.B.TO | Materials | $8,100.40 |
Fortis | FTS.TO | Utilities | $9,587.97 |
Granite REIT | GRT.UN.TO | Real Estate | $9,902.08 |
Magna International | MG.TO | Cons. Discre. | $5,356.40 |
National Bank | NA.TO | Financials | $12,292.39 |
Royal Bank | RY.TO | Financial | $8,794.50 |
Stella Jones | SJ.TO | Materials | 11,417.20 |
Cash | $273.25 | ||
Total | $100,184.31 |
My account shows a variation of +$5,625.95 (+5.95%) since the last income report on December 6th.
Here’s my US portfolio now. Numbers are as of January 9th, 2024:
Company Name | Ticker | Sector | Market Value |
Apple | AAPL | Inf. Technology | $7,422.40 |
Automatic Data Processing | ADP | Industrials | $8,996.88 |
BlackRock | BLK | Financials | $11,160.66 |
Brookfield Corp. | BN | Financials | $13,352.99 |
Home Depot | HD | Cons. Discret. | $10,437.90 |
LeMaitre Vascular | LMAT | Healthcare | $5,588.00 |
Microsoft | MSFT | Inf. Technology | $17,610.43 |
Starbucks | SBUX | Cons. Discret. | $8,006.15 |
Texas Instruments | TXN | Inf. Technology | $8,427.00 |
Visa | V | Financials | $13,127.00 |
Cash | $234.08 | ||
Total | $104,363.49 |
My account shows a variation of +$3,152.15 (+3.11%) since the last income report on December 6th.
We’ll cover earnings in February.
Each quarter we run an exclusive report for Dividend Stocks Rock (DSR) members who subscribe to our very special additional service called DSR PRO. The PRO report includes a summary of each company’s earnings report for the period. We have been doing this for an entire year now and I wanted to share my own DSR PRO report for this portfolio. You can download the full PDF showing all the information about all my holdings. Results have been updated as of January 10th, 2024.
Download my portfolio Q3 2023 report.
There were a lot of changes vs last year. Throughout 2023, I made several trades to strengthen my portfolio (selling AQN.TO, VFC, SYZ.TO, ENB.TO, buying HD, COST, CCL.B.TO and more of FTS.TO and BEPC.TO). I also benefitted from several strong dividend growers such as ATD.TO (+25%), V (+16%), MSFT (+10%).
Dividend growth (over the past 12 months):
Canadian Holding payouts: $393.18 CAD.
U.S. Holding payouts: $224.57USD.
Total payouts: $696.27 CAD.
*I used a USD/CAD conversion rate of 1.3363
Since I started this portfolio in September 2017, I have received a total of $24,113.50CAD in dividends. Keep in mind that this is a “pure dividend growth portfolio” as no capital can be added to this account other than retained and/or reinvested dividends. Therefore, all dividend growth is coming from the stocks and not from any additional capital being added to the account.
2023 was the year of a great comeback. I have followed my investment rules to the dot and it has born fruit. I’m entering 2024 with strong confidence that I have the right portfolio for whatever will come my way.
As you read this update, I’m probably eating a good steak with a good Malbec or Cabernet in my hand in Argentina. I raise my glass to all dividend growth investors for another successful year on the market!
Cheers,
Mike.
I compile a list of stocks expected to do better than the market for Dividend Stocks Rock members each year. This year, I’ve reviewed the 11 sectors for them and included top picks for each. I’ve decided to share three of them with you: Consumer Discretionary, Financials, and Industrials.
You can download 6 of my top 24 for 2024 right here:
The post Trades… Many Trades! – December Dividend Income Report appeared first on The Dividend Guy Blog.
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An easy way to find buying opportunities is to look at the worst sectors in the previous year. Let’s see the best the US market has in store for investors in 2024 and beyond!
Want more of our Best Stocks Ideas? Download the Top Stocks for 2024 Booklet that includes three sectors review and 6 different stock ideas!
We also got some of the best Canadian dividend ideas for you!
Top 3 Canadian Stocks for 2024 [Podcast]
Let’s look at the role played by sectors in your portfolio and a quick recap of what happened for each. Mike also suggests three sectors showing opportunities right now.
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In this 2023 year-end sector review, part 2, we look at what kind of year it was for healthcare, industrial, technology, materials, REITs, and utility sectors. How is 2024 shaping up for them?
Missed part 1 of our 2023 year-end sector review? No worries, read it here.
If you invested in healthcare in 2023, chances are you didn’t have a good year. The ETF benchmark shows a total return of -1.72% as of December 6th, but there are many major losers.
The graph shows some companies had it hard (Baxter -28%, and Pfizer -39%) while most just didn’t do much (between -7% to +5%). Special mention to Cardinal Health (CAH) at +42%. Pharmaceutical wholesalers operate in a razor-thin margin environment with large volumes and heavy regulation, that can change at any time. We feel the weight of debt and the hungover from the COVID hype, especially for Pfizer.
Industrial companies are highly cyclical and usually follow the economy. Many old industrials are a “GDP+” type of business, i.e., they generate a bit more than the economic growth of their market, be it a single country or the whole world for the bigger guys. For example, the transportation industry’s volume (railroads, trucking, parcel delivery) depends on how much people consume. Not many resources or goods to transport if nobody’s buying.
After a difficult year in 2022, many industrial stocks came back strongly. Defense stocks continue to get a lot of love as the war between Russia and Ukraine keeps raging and now, another conflict erupted between Israel and Palestine. In transportation, we saw railroads and trucking signalling the economic slowdown with lower volumes. Industrial parts manufacturers also saw revenue slowing down as most companies try to keep lean inventory. Such slowdowns should continue in 2024. However, if we hear talk about interest rate cuts in the new year, you can bet industrials will rise faster than their backlogs!
Get great stock ideas regularly! Download our Rock Stars List, updated monthly.
After the bear market of 2022 for the tech world—Technology Sector ETF XLK was down 24% and Nasdaq -29%—2023 was quite the comeback! The XLK ETF is now +50% and Nasdaq +38%. Over two years, XLK’s total return is +7.65% while the Nasdaq trails at -7.39%. The bull ride of 2021 was exceptional…and exaggerated!
The theme in 2023 was the rise of artificial intelligence. While most semiconductor makers are still in a down investment cycle, those making chips to power AI got all the love in the world. Nvidia stock price more than tripled in 2023; you might want to revisit your exposure to this one.
A warning about chasing trends, though. AI will help many industries to save on costs and improve productivity across the board. There will be winners and losers. Most trends push all stocks in an industry way too high. Remember cannabis stocks in 2018, gold mining stocks in 2020, crypto companies in 2021? While you want to participate in the trend, you don’t want to be over exposed. Good diversification with exposure to the tech sector will do the job more safely than going all in.
Historically, most commodities are volatile, but effective to fight inflation. Surprisingly, most commodities didn’t keep up with inflation over the past 3 years.
“Gold is back” in 2023 with a push toward 13% gain in value and now trades above $2,000, pretty close to its all-time-high of 2020. Gold experts predicted gold price to reach $3,000 before Christmas… of 2020. Careful with expert predictions.
Demand surged for many commodities in 2021. Then, it cooled off rapidly in 2022, which continued in 2023. The 2021 rush for materials brought many companies to historic highs last year. Unlike the energy sector, the commodity price party crashed rapidly. Demand for lumber, iron, paint, etc., weakened and many investors sobered up. There isn’t much a company can do when its selling price declines rapidly. It was a modest year for basic materials with many burdened with higher-than-expected inventory.
You know the drill with materials: buy market leaders when the commodity price is depreciated, and cash your profit when you can. I’m not a big fan of this strategy because you have to “guess right” when you buy and also when you sell. My warning about chasing the AI trend also applies to battery makers and lithium.
Get great stock ideas regularly! Download our Rock Stars List, updated monthly.
Another sector that suffered in 2022 and that didn’t do much in 2023. RETIs are slightly positive in the U.S., but they continue to drag their feet in Canada.
The obvious narrative is that interest rates will affect REITs’ funds from operations going forward. Since REITs use lots of leverage, debt payments will become a lager burden, forcing some REITs to slowdown their distribution growth, to forget about increasing their payouts, or to slash their juicy dividends.
Since REITs diversify their debt maturity over many years, they might not feel the impact on their quarterly earnings just yet. But rest assured, the storm is coming. It’s just that real estate usually lags, but the market is proactive with its valuation.
REITs are also suffering due to income seeking investor dropping their investments in equities to go back to their beloved bonds and GICs. We might see them come back sooner than expected if rates go the other way in 2024.
Another question mark surrounds real estate sub-sectors still affected by the pandemic. Office REITs may see their occupation rates go down as businesses revise their office space needs. Healthcare REITs are stuck with a dual problem: lower occupation rates and higher expenses to ensure senior security. This trend will continue to affect REITs in 2024.
Get great stock ideas regularly! Download our Rock Stars List, updated monthly.
Algonquin (AQN.TO) dropped a bomb on the market with a bad quarter in November 2022, signalling the worst for 2023, which happened faster than expected. It cut its dividend in January, weeks before announcing its quarterly results. The rest of the year is history; utilities suffered from higher interest rates and lack of love as income seeking investors left the boat to disembark on Bonds & GICs island. In fairness, when 10-year government bonds offer over 4.5%, income-seeking investors would be fools to go for stocks paying the same yield.
With higher interest charges hurting their balance sheet and cash flow, it’s clear that all utilities will suffer for a while.
Renewable energy utilities also had a really bad year, which NextEra Partners (NEP) didn’t help. The graph shows NEP sinking like a stone after it announced a reduction of its distribution per unit growth. The financing burden caught up with NEP; it has debt it had planned to pay off in part by issuing more shares; with a dwindling share price, they’ll have to resort to using costly debt for near term financing.
While most renewables face a challenging environment, not all renewable energy utilities are such precarious positions, as explained in What’s Happening with Renewables? Different companies with different business models have different debt structures. When a NEP-like situation happens, the market puts all renewable companies in the same basket, and solid companies are also punished, unfairly. Renewable energy is here to stay. Investors simply have to do their homework to choose companies with strong financial metrics and be patient.
The post 2023 Year-End Sector Review – Part 2 appeared first on The Dividend Guy Blog.
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It is always fun to get excited about buying opportunities and to add a new company to our portfolio. Should you have some money waiting in your bank account, we got some of the best Canadian dividend ideas for you!
Want more of our Best Stocks Ideas? Download the Top Stocks for 2024 Booklet that includes three sectors review and 6 different stock ideas!
Is real estate still a good investment or is it dead money? Let’s see what’s happening with the REIT sector!
Is It Time to Sell Your REITs? [Podcast]
Let’s prepare for the New Year with our How to Invest in 2024 series!
How to Invest in 2024 [Podcast Series]
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Download our Dividend Rock Star List now and do not miss out on the good stuff! Receive our Portfolio Workbook and weekly emails, including our latest podcast episode!
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This podcast episode has been provided by Dividend Stocks Rock.
The post Top 3 Canadian Stocks for 2024 [Podcast] appeared first on The Dividend Guy Blog.