As we enter earnings season, the vast majority of our e-mails will be filled with earnings-related content on what we view as some of the best opportunities on the market today.
However, there are a few things we want to go over first.
I have purchased the Dividend Growth model income portfolio
As a vote of confidence for our model income portfolios, I started an account at Wealthsimple Trade and bought, in full, the Dividend Growth model portfolio.
As we move forward with the updated reports, we will also be adding ownership disclaimers to them as well, as it added a few new positions to my portfolio.
The commission-free nature and fractional ownership of stocks at Wealthsimple Trade will allow me to follow this portfolio in its entirety, and I’m excited to own it with many of the members who have modelled after it as well.
The Q&A
We’ve been receiving an extensive number of e-mails lately with market-related questions.
And although we do love answering them, we would rather members route them through the Q&A. The Q&A is an outstanding resource that allows all members to see the questions and answers.
All it takes is a simple click of a checkbox if you’d like to hide your identity.
Whether it is market-related, individual stock-related, platform related, or maybe you even want a custom report on a specific company, utilizing the Q&A is the best route to go about it.
Click here to head to the Q&A and ask a question
Dividend Watchlist
Over the last few weeks, you may have come across this portion of the platform. It is a new addition, and we’re working on finalizing our methodology, which will lead to some additions to our watchlist.
We’ll send you an e-mail when the list is populated.
Foundational Stock earnings
We’ll kick earnings off with the Foundational Stocks here at Premium.
Of note, if you ever want to keep tabs on company earnings when it comes to our Foundational Stocks, you can find them in the earnings boxes directly on the Foundational Stock pages themselves.
Disney (DIS)
It was a decent Q4 for Disney, beating the top and bottom lines. Earnings of $0.99 per share beat by $0.20, while revenue of $23.51B beat by $230M. Leading the way again, the Parks segment posted strong 21% YoY growth on strong margins. Despite reducing peak capacity by 20% over the holiday period vs pre-pandemic levels, it still grew margins on higher prices.
There is also a fundamental shift in the company’s streaming strategy. For the first time, Disney+ subscribers posted negative growth (-1%) following price hikes. The company is laser-focused on cutting costs and focusing on core franchises.
Speaking of cutting costs, post-earnings, the company announced it was slashing 7,000 jobs as it looks to streamline operations and embark on a $5.5B cost-saving initiative. Finally, it is worth noting that management intends to reinstate the dividend (pending board approval) by the end of this year. While investors should not expect it to be material, it will likely grow along with earnings.
It is one of those kitchen sink quarters where plenty was happening as the company set the stage for a reset. Overall, the markets reacted well to the earnings, as Bob Iger’s return brings back a sense of focus to the company.
Pepsi (PEP)
One of the best-performing US Foundational stocks last year, PepsiCo closed off Fiscal 2022 with a strong quarter. Earnings of $1.67 per share (8% Y/Y) beat by $0.02, and revenue of $28B (+10.9% Y/Y) beat by $1.18B.
Organic sales grew 15% YoY, driven by better volume and pricing. Frito-Lay was particularly strong with 18% growth vs consensus for 11.5% YoY growth. As expected, margins ticked down on inflationary pressures (partially offset by the aforementioned price increases) and higher-than-expected SG&A costs.
Along with earnings, the company announced a 10% raise to the dividend, which effectively extends its dividend growth streak to 51 years!
The company also released fiscal 2023 outlook in which it expects the following:
- A 6% increase in organic revenue;
- An 8% increase in core constant currency EPS;
- A core annual effective tax rate of 20%
- Total cash returns to shareholders of approximately $7.7 billion, comprised of dividends of $6.7 billion and share repurchases of $1.0 billion.
The company’s long-term top-line growth target is 4-6%, so PepsiCo is delivering strong results and guidance.
Fortis (FTS)
Fortis continues to deliver as Q4 results topped on both the top and bottom lines. Earnings of $0.72 per share (+14.2%) beat by $0.02, and revenue of $3.168B (+20%) beat by $479M.
The strong year-over-year growth was attributed to several factors, including rate base growth, higher electricity sales and higher wholesale and transmission revenue, among other factors.
As we’ve discussed before, utilities remain under pressure due to the rapid pace of rates and hyperinflation. As a high-CAPEX industry, it now costs more to borrow. However, over the long term, regulated utilities can help balance those pressures with rate base growth typically tied to inflation.
The company made a statement about inflation and interest rates in its press release. Fortis “does not currently expect there to be a material impact on its operations or financial results in 2023”.
That means the company is well positioned to drive earnings and dividend growth in the 4-6% range through 2027. All in all, Fortis is doing what Fortis does – delivering consistent and reliable results.
Telus (T)
It was a mixed Q4 for TELUS as earnings of $0.23 missed by $0.06 and revenue of $5.06B (+3.9% Y/Y) beat by $40M. Beats on the top line were mainly due to strong subscriber growth, in which it had industry-leading net total customer additions of 301,000, which also happened to be the company’s best Q4 on record.
The TELUS Health segment continues to be an area of high growth as revenue grew by 75% as it welcomed the latest acquisition, Lifeworks, into the fold. In our opinion, it is only a matter of time before TELUS Health gets spun out like TELUS International.
Most importantly, the company released Fiscal 2023 guidance which again points to industry-leading growth: The company also reiterated its dividend growth program, which is expected to be in place through 2025.
The FCF guidance above was slightly shy of estimates even though it is up materially from the $1.3B it generated in Fiscal 2022.
Overall, the investment thesis remains the same. TELUS is one of the country’s best and most diverse telecoms and provides industry-leading growth with a dividend that is well covered by cash flows.
Dividend Bull List Stocks
Brookfield Asset Management (BAM)
BAM does not yet have any estimates, so there is nothing to compare against, nor does it have much in terms of historical data points.
That said, it was a strong quarter for the company. Fee-related earnings increased by 8%, and EPS by ~6% even though ‘net income’ dropped YoY. On the year, it raised a record $93B of capital in Fiscal 2022.
The company also succeeded in fundraising as it had additional closes in its flagship funds in infrastructure and Private Equity, and its Global Transition fund is 50% invested. It also stated that it was in the process of fundraising for its next flagship fund centred around real estate.
To close, the company also added a statement on the dividend.
Moving forward, the dividend is expected to have a compound annual dividend growth rate in line with the 15-20% CAGR of FRE.
When you combine the current yield (north of 3.5%) and the expected dividend growth rate, you have an attractive dividend growth stock.
You can click here to read our updated report on Brookfield Asset Management
TMX Group (X)
It was a mixed quarter for the TMX Group, which beat on earnings but missed on revenue. Earnings of $1.74 beat by $0.05, while revenue of $274M missed expectations for $277M. Despite the miss, the company did grow revenue by 9% while earnings dipped by about 2% year-over-year.
Of note, it also raised the dividend by 5% in this recent quarter.
It remains a challenging environment for capital markets. It saw noticeably lower new listing fees, and volume across its exchanges dropped by 16% YoY. Notably, the TSX and TSX Venture volume were down 5% and 34%, respectively. The latter is not all that surprising. As we’ve discussed, small caps fall out of favour in a risk-off environment.
Unfortunately, despite the markets showing some signs of life, it is clear that we are not yet in risk-on mode. If we are to take away a glimmer of hope, we can point out that January numbers were better overall than December.
All in all, TMX is operating in a challenging environment. Despite this, it is performing quite well thanks to recent acquisitions like BOX. Even from an organic growth perspective, it isn’t doing too bad all things considered.
We view it to be an excellent opportunity to accumulate while price levels remain depressed. Eventually, the markets will rebound, and trading activity will pick up.
When this happens, TMX group’s moat and dominance should shine.
Click here to read our updated report of TMX Group
Intact Financial (IFC)
Intact Financial posted mixed fourth-quarter numbers. The company posted revenue just north of $5B, right in line with expectations. Still, earnings per share missed in a big way, coming in at $ $2.26 when around $3 was expected.
This marks the second straight quarter Intact has missed earnings estimates.
However, the stock price has barely moved on the reported miss, highlighting that the expected earnings decline is likely already priced into Intact’s results.
Across virtually all segments, the company expects premiums written to grow at the mid-to-high single-digit levels.
The company’s debt-to-total capital ratio declined to 21.2% (the lower, the better.) The company has repurchased a total of $776M in shares since 2009 and has renewed its share buyback program through 2024.
The company also increased the dividend by 10% in the quarter, continuing its reputation as one of the best dividend growth stocks in the financial sector.
Overall, we view Intact to be one of the best property and casualty insurance companies in North America.
You can read our updated report of Intact Financial here
Growth Bull List Stocks
TFI International (TFII)
TFI International posted fourth-quarter results that were relatively in line. Of note, all numbers are in USD unless otherwise stated.
Earnings per share of $1.72 was right in line with estimates, and revenue of $1.956B fell shy of expectations of just over $2B. When we look to full-year numbers, the company provided exceptional growth, closing the year out with revenue of $8.81B and adjusted earnings per share of $8.02, growth of 22% and 53%, respectively.
The company posted strong growth in its most critical segments, including 43% revenue growth in the less-than-truckload segment and 13% in the truckload segment.
US growth is the key driver, with US sales up 25.6% overall while Canadian sales sat at 15%. However, considering that the bulk of this company’s revenue (around 68%) is generated in the United States, this is where we’d like to see the growth coming from.
The company highlighted its strong position and favourable outlook moving forward in 2023, which is somewhat of a change in direction from the tempered guidance it issued in the last quarter.
The valuation thesis for our addition of TFI International to the Bull List seems to have played out, with the stock up 65% since our addition.
We now believe TFI to be fairly valued, and in this situation, the company is likely to grow relative to its overall earnings growth.
You can read our full report on TFI International here
Brookfield Corporation (BN)
In the company’s first post-BAM spinoff quarter, Brookfield Corp delivered a strong Q4. FFO per share of $0.71 beat by $0.01, revenue of $24.21B (+11.2% Y/Y) beat by $2.14B, and distributable EPS of $0.71 (+17%) topped by a penny.
The company has $124B in liquidity at the group level and $5.4B at the corporate level. Given the level of liquidity, it is well-positioned to make a big splash. In fact, management commented that it was ‘very close’ to acquiring a $30B operating company before it closed on Oaktree.
Management also spoke about the company’s undervaluation and already spent US$120M on share repurchases. So long as there exists a big gap between market price and NAV, we expect these share repurchases to continue.
Overall, it was a strong quarter for the company, and it is clear that they are on the hunt to make another big deal. It is also buying back shares at a rapid pace since the discount to net asset value persists.
You can read our updated report of Brookfield Corporation here
