Before we get into the US Aristocrat lists, I thought we’d comment on the latest Canadian CPI report, and a new Market Mindset episode we’ll be running this Tuesday.
CPI numbers are improving, but they are still poor
Canada’s annual inflation rate came in around 4.3%, still relatively high but also down significantly on a year-over-year basis and right in line with analyst expectations.
Shelter and grocery costs are slowing but still sky-high, at 5.4% and 9.7% year-over-year, respectively. Canadians are taking a hit in mortgage interest costs, as the year-over-year increase of 26.4% was the highest ever recorded.
This is going to have a ripple effect on the entire economy, and one that is likely to be felt slowly. As mortgage costs creep up, discretionary spending slows. I’m sure many members are even feeling it at this point. I know I am.
The Bank of Canada’s decision to hold instead of increase policy rates looks to be the right move at this moment in time. However, in our opinion, we will likely see elevated interest rates for longer, as getting inflation under control, particularly food and shelter costs, will not happen overnight.
The Bank of Canada is now faced with the issue of mortgage renewals, as many Canadians who signed cheap pandemic mortgages will be renewing them in the upcoming years, or are already feeling the pressure with a variable rate. It is in their best interest to get rates down quicker, primarily due to an awkward situation they created themselves.
However, investors should not bank on them doing so at the expense of higher inflation. If it becomes sticky, it is likely we see higher rates for longer.
Although it is important to keep an eye on them, an investment strategy based on where policy rates go will likely land you in hot water. Even the best economists on the planet cannot predict the direction of policy rates and the broader economy.
So, as individual retail investors, the best thing we can do is buy strong companies and hold them for the long term. Higher rates for longer will ultimately mean more attractive stock prices, a benefit for those who have a longer time horizon.
Market Mindset – Analyzing Canada’s banks
We’re set to run a members-only Market Mindset episode this week, where we’ll go over Canada’s “big six” banks, speak on their mortgage exposure, net interest margins, and much more.
The live episode is set to run on Tuesday at 2 PM EST, and a live Q&A for members will follow.
However, please don’t worry if you’re not able to attend. We will make a recording of the episode available for viewing afterwards. As a member, you don’t need to register to attend.
Just keep your eyes open for our e-mail on Monday evening and a final warning on Tuesday and follow the instructions inside.
US Aristocrats, Contenders, Challengers & Champions
This week, we are going to discuss the two main lists that cover U.S. dividend growth stocks. As a reminder, the two lists are as follows:
• U.S. Dividend Aristocrats
• David Fish’s U.S. Contenders, Challengers and Champions (CCC) list.
Canadian and US Aristocrat differences
Before we dig into these lists, it is important to note that despite the “Aristocrat” name, the Canadian and U.S. lists vary significantly due to the length of streaks for inclusions.
A Canadian Aristocrat only needs five consecutive years of dividend growth, while a U.S. Aristocrat has a streak of 25+ years.
That is a wide difference and when talking about Aristocrats, it’s good to be aware that the U.S. list is generally considered higher quality and more reliable due to the length of the growth streaks.
Much like in Canada, the Aristocrat list is based on an Index, the S&P 500 Dividend Aristocrats Index, and there are several U.S. based ETFs that track the Index.
For its part, the Canadian All-Star list was modelled after the David Fish’s CCC list we’ll talk about below, but once again they are not quite the same.
First, a small history lesson
The CCC list was a labour of love for the late David Fish. Mr. Fish was the architect and steward of the CCC list until his passing back in 2018. He gained prominence as one of the first authors on Seeking Alpha and always maintained that his content be available free of charge.
At the time, I (Mat) was part of a Seeking Alpha cohort that would become stewards of the list. There were many of us that looked up to Mr. Fish and wanted to recognize his contributions to the community.
We were in discussion with his estate to re-direct all future article proceeds from the list to a charity of their choice.
Unfortunately, others decided to replicate his list and began publishing the list before we had a chance to fully take it over. It is worth noting that the list as it exists today is significantly less informative than it once was in terms of data. The new CCC list is significantly pared down.
The site where this information was held (dripinvesting.org) has since been purchased by Moneyzine and list appears to be licensed by Dividend Radar.
While I am no longer in the know as to who is maintaining the list, it is still available free of charge at the following site:
https://moneyzine.com/investments/dividend-champions/
You’ll note that there are several other global dividend growth lists including the Canadian All-Star list. Once again, credit to the late Mr. Fish who was really the pioneer of this movement.
Now, let’s dive into the methodologies
Much like in Canada, the U.S. Aristocrat list uses calendar year and the “ex-dividend” date in their analysis.
As a refresher, the ex-dividend date
“is the day on which a stock trades without the benefit of the next scheduled dividend payment. Instead, the dividend is paid to the previous owner.”
Unfortunately, the CCC list no longer posts their methodology, but it appears it is now all over the map. How can we tell?
There is a column titled “Streak basis” and it appears that Ex Date, Declaration Date, and Payable Date are all used. If I was to guess, they probably transitioned away from the original payment date (which is what Mr. Fish used diligently) to ex date which seems to be the dominant streak methodology.
However, I find it strange that the same list uses 3 different data points which does not actually make them comparable. Call me a stickler for data accuracy, but this does seem like an odd choice.
Generally, the Aristocrats list has much stricter guidelines
To be eligible for inclusion on the U.S. Aristocrat list, the company must have a market cap of at least $3 billion. Once again, there is no methodology for the CCC list and since market cap is no longer a data point, we’ll just assume there is no limit since there are 725+ companies on the list.
Likewise, the Aristocrat list only includes S&P 500 companies, while the CCC list has no such stipulation which is why there are far more companies on the list. The CCC list has 136 companies with streaks of 25+ years, while the Aristocrat list only has 66.
As mentioned, the U.S. Aristocrat list only includes companies with streaks of 25+ years. They also don’t have that weird stipulation that the Canadian list does, which enables for two consecutive years of dividend stagnation. This is a good thing as far as we are concerned.
Should the list drop to 40 or less, then the Index may decide to reduce the number of consecutive years to 20. As it is an Index, they want to ensure broad representation of assets inside of it. I don’t recall a time where the number dropped below 40, but the stipulation is contained within their methodology document.
Where the CCC list provides the most value
The CCC list is more valuable in that it breaks companies down into three categories:
• Champions: 25+ yrs
• Contenders: 10-24 yrs
• Challengers: 5-9 yrs
This is where the CCC list provides its value. Most Champions are well known but there are many undiscovered gems on the Challengers and Contenders list that you simply will not find on the Aristocrat list.
We’ll close by chatting briefly about Dividend Kings
While there is no formal list that tracks a “King” and it’s not a separate category on the CCC list, there is a general acceptance that Kings have achieved 50+ years of consecutive annual dividend growth.
In Canada, there is only one company – Canadian Utilities (CU) – to have achieved this status. When the calendar year turns to 2024, current Stocktrades Premium Foundational Stock, Fortis (FTS), will be the second.
According to the CCC list there are 42 Kings in the U.S. led by American Water State Company (AWR) and their 69-year streak. Other notables that will likely be familiar with investors include:
• Procter & Gamble (67 yrs)
• 3M Company (65 yrs)
• Coca-Cola (61 yrs)
• Johnson & Jonson (61 yrs)
• Target (56 yrs)
• Pepsi (51 yrs)
• Walmart (50 yrs)
To close, we’ll repeat much of the same we did last week – it is important to understand the distinction between both lists. They both provide value in your research, but both have benefits and downfalls.
Equally important to note that the Canadian dividend growth lists have different methodologies than their U.S. counterparts.
That said, now that you are better informed, you can more effectively leverage the lists to your advantage. Or alternatively, you can stick to our stock screeners here, as we feel they provide the most accurate source of data.
