The Only Stock Return Formula You’ll Ever Need (If You’re a DGI Investor)
MP Market Review - July 4, 2025
Summary
Welcome to this week’s MP Market Review – your go-to source for insights and updates on the Canadian dividend growth companies we track on The List! While we’ve expanded our watchlists to include U.S. companies, The List-USA, our Canadian lineup remains the cornerstone of our coaching approach.
Don’t miss out on exclusive newsletters and premium content that will help you sharpen your investing strategy. Explore it all at magicpants.substack.com.
Your journey to dividend growth mastery starts here – let’s dive in!
Last week, dividend growth stayed the same with an average return of +6.9% YTD (income).
Last week, the price of The List was up from the previous week with an average return of +8.7% YTD (capital).
Last week, there were no dividend announcements from companies on The List.
Last week, there were no earnings reports from a company on The List.
This week, no company on The List will report on earnings.
DGI Clipboard
“In the short run, speculative return—the change in the price investors are willing to pay for a dollar of earnings—drives the market. But in the long run, it reverts to the mean. Only investment return is sustainable.”
— John Bogle, speech at the CFA Institute, 2001
The Only Stock Return Formula You’ll Ever Need (If You’re a DGI Investor)
Intro
John Bogle, founder of Vanguard and a pioneer of index investing, left behind a remarkably simple formula for understanding long-term stock market returns:
Total Return = Investment Return + Speculative Return
This equation helps investors separate what truly drives long-term wealth from what merely adds short-term noise.
Investment Return is the foundation. It consists of two measurable components:
Earnings growth: the rate at which a company’s profits increase.
Dividend yield: the income paid out to shareholders based on the current price.
This is the part of the equation that reflects actual business performance. If a company grows earnings at 6% per year and pays a 3% dividend, the investment return is 9%. It’s based on productivity, not prediction.
Speculative Return, on the other hand, comes from changes in valuation—specifically, how much investors are willing to pay for a dollar of earnings. If a stock’s price-to-earnings (P/E) ratio rises, the share price can climb even if the business itself hasn’t improved. But if the P/E contracts, it can drag returns down despite strong fundamentals.
Bogle warned investors not to rely on this speculative component. It’s fickle and often mean-reverting over time.
This framework maps perfectly onto dividend growth investing (DGI). As dividend growth investors, we focus almost entirely on the investment return side of the equation. We look for high-quality companies with consistent earnings and a track record of increasing dividends. We care less about what the market might pay tomorrow and more about what the business is producing today.
The best part? Dividend growth and earnings growth are often tightly linked. A company can’t raise its dividend for 10, 20, or 30 consecutive years unless its profits are also growing.
Even during periods when valuations compress and speculative return turns negative, our dividends continue. And by reinvesting those dividends, we acquire more shares at lower prices, compounding our future income even faster.
That’s what makes DGI so powerful: it’s not reliant on market timing, headlines, or sentiment. It’s grounded in fundamentals and powered by time.
Bogle’s formula reminds us that we don’t need to predict the market to succeed. We just need to focus on what we can control—buying great businesses at reasonable valuations and letting compounding do the heavy lifting.
Takeaway
So the next time the market gets volatile, remember the formula. It’s not about chasing speculative return. It’s about building a steady, rising stream of income from companies that reward shareholders year after year.
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DGI Scorecard
The List (2025)
The Magic Pants 2025 list includes 29 Canadian dividend growth stocks. Here are the criteria to be considered a candidate on ‘The List’:
Dividend growth streak: 10 years or more.
Market cap: Minimum one billion dollars.
Diversification: Limit of five companies per sector, preferably two per industry.
Cyclicality: Exclude REITs and pure-play energy companies due to high cyclicality.
Based on these criteria, companies are added or removed from ‘The List’ annually on January 1. Prices and dividends are updated weekly.
‘The List’ is not a portfolio but a coaching tool that helps us think about ideas and risk manage our model portfolio. We own some but not all the companies on ‘The List’. In other words, we might want to buy these companies when valuation looks attractive.
Our newsletter provides readers with a comprehensive insight into the implementation and advantages of our dividend growth investing strategy. This evidence-based, unbiased approach empowers DIY investors to outperform both actively managed dividend funds and passively managed indexes and dividend ETFs over longer-term horizons.
Note: In the last week of every month, I will show the updated watchlist for our American dividend growers, The List-USA. It will be shown after the Canadian watchlist below.
Performance of 'The List'
Last week, dividend growth stayed the same, with an average return of +6.9% YTD (income).
The price of 'The List' was up from the previous week, with an average YTD return of +8.7% (capital).
Even though prices may fluctuate, the dependable growth in our income does not. Stay the course. You will be happy you did.
Last week's best performers on 'The List' were Magna (MGA-N), up +8.24%.; TFI International (TFII-N), up +4.09%; and Bell Canada (BCE-T) up +3.18%.
Waste Connections (WCN-N) was the worst performer last week, down -2.78%.
Tired of the market noise? These two quick reads from The Globe and Mail remind us why ignoring headlines and sticking with quality companies—especially utilities—can lead to long-term success, while others get caught chasing hype and short-term trends.
