Summary
This is not a stock-picking newsletter!
It’s a behind-the-scenes look at how a dividend growth portfolio is built, maintained, and improved over time.
Welcome to this week’s MP Market Review.
Before we begin, a quick explanation of the name.
Many years ago, when I first discovered dividend growth investing, I came across a quote that stopped me in my tracks:
“You have a pair of pants. In the left pocket, you have $100. You take $1 out of the left pocket and put it in the right pocket. You now have $101. There is no diminution of dollars in your left pocket. That is one magic pair of pants.”
That is dividend growth investing in its simplest form.
When a quality company pays a dividend, cash moves from the company’s pocket to yours, yet your ownership stake remains intact. As earnings grow, dividends tend to grow. As dividends grow, share prices often follow. Reinvest those dividends into additional shares, and the cycle accelerates: more shares generate more dividends, which buy even more shares.
That’s the magic.
It’s why we call this newsletter Magic Pants Dividend Growth Investing.
Every week, we track the companies on The List, our curated watchlist of Canadian dividend growth businesses selected for their ability to produce rising income over time. While we also publish a U.S. edition each month, Canada remains our primary hunting ground.
Our objective is straightforward:
Grow dividend income by 7-10%+ annually while achieving long-term capital appreciation that matches or exceeds the TSX Composite in Canada and the S&P 500 in the United States.
What follows is not theory.
It is the real-world application of a dividend growth strategy using real money, real positions, and real results.
Markets create an endless stream of noise. We ignore most of it.
Instead, we focus on a handful of metrics that tell us whether our process is working. No predictions. No forecasts. No crystal ball.
Just results.
The magic is in the dividend. Dividends lead. Prices follow.
This Week’s Scorecard
MP Wealth-Builder Model Portfolio (Canada)
Annualized Total Return: +17.11% since inception
Total Return (includes dividends): +16.49% year-to-date
Current Yield: 3.2%
The List (Canada)
Dividend Income Growth: +6.6% year-to-date
Capital Appreciation: +8.2% year-to-date
Dividend Announcements Last Week: None
Earnings Reports Last Week: Five
Earnings Reports This Week: None
DGI Clipboard
“Current yield, using its own historic yield as a guide, is, in my view, a fine valuation measure.”
— Tom Connolly
Timely Ten: Subtle Moves, Important Signals
Timely Ten Update
There was little movement in either the Canadian or American Timely Ten this month, with only one new company joining each list. However, several subtle changes caught our attention and reinforced the value of monitoring quality companies when short-term concerns place pressure on their share prices.
Canadian Timely Ten
Intact Financial joined the Canadian Timely Ten after climbing four positions from last month. A weaker-than-expected second-quarter earnings report, driven largely by elevated catastrophe and large-loss claims, appears to be the primary reason for the recent share-price pressure. Despite this short-term setback, Intact remains a high-quality business and an attractive long-term investment at current levels.
Metro Inc. and Waste Connections remain the two highest-quality companies moving up the list. Both are now trading at sensible valuations and deserve a closer look. I will be conducting a deeper review of each company to determine whether the recent weakness has created an opportunity to add to our positions.
The biggest surprise was Thomson Reuters. After stumbling for several months amid concerns about potential AI disruption, the share price appears to be regaining momentum. Fortunately, we added to our position during the weakness. If the stock eventually returns to its historical average valuation, our decision to buy when sentiment was negative should prove worthwhile.
American Timely Ten
WEC Energy Group was the only new addition to the American Timely Ten this month. Its recent share-price weakness does not appear to signal a problem with the dividend or its core regulated utility operations.
Instead, the market appears to be reassessing a previously elevated valuation while factoring in higher interest rates and uncertainty surrounding future data-centre development in Wisconsin. The long-term investment thesis remains intact, but these risks deserve continued monitoring.
The other notable development was the timely signal the list provided on CME Group and Intercontinental Exchange last month. Both companies ranked attractively, giving us the confidence to add to our positions.
The market has since responded favourably, with ICE rising 14.4% and CME gaining 12.3% over the past month.
The Timely Ten is published monthly and ranks the most undervalued dividend growth companies in Canada and the United States. The rankings are based on Dividend Yield Theory, a valuation framework that I explain in greater detail later in this article.
Note: goeasy Ltd.’s dividend has been suspended, so we have moved it to the bottom of the list.
Background
The third step in our investment process is monitoring. Once we’ve identified high-quality dividend growth companies and purchased them at sensible prices, we continuously monitor them for changes in valuation and business fundamentals.
Tracking dozens of companies can quickly become overwhelming. Fortunately, our focus is limited to the businesses on our watchlists rather than the thousands of stocks that make up the broader market. Even so, we are always looking for ways to improve the efficiency and consistency of our process. One of the most valuable tools we have found is Dividend Yield Theory.
What Is Dividend Yield Theory?
Dividend Yield Theory is a straightforward valuation method based on a simple observation: the dividend yields of mature, high-quality dividend growth companies tend to fluctuate around a historical average over time, provided the underlying business remains fundamentally intact.
Because a stock’s price and dividend yield move in opposite directions, a higher-than-normal dividend yield often signals that the shares are trading below their historical valuation. Conversely, an unusually low dividend yield may indicate that the shares have become expensive.
Dividend Yield Theory doesn’t tell us what to buy. Our quality screening process does that. Instead, it helps us determine when to buy.
Building the Watchlist
Before applying Dividend Yield Theory, every company must first qualify for our watchlist by meeting our quality standards.
Dividend growth: Minimum 10 consecutive years of dividend increases.
Market capitalization: At least $1 billion.
Diversification: Maximum of five companies per sector, with a preference for no more than two per industry.
Business quality: We generally exclude REITs and pure-play energy companies because their earnings and dividends tend to be more cyclical.
This quality-first approach dramatically reduces the investment universe and allows us to focus only on exceptional businesses.
How We Rank the Timely Ten
Each month, we rank every company on our Canadian and U.S. watchlists by the discount between its current market price and its estimated fair value, based on Dividend Yield Theory.
Fair value is calculated using a simple formula:
Fair Value = Current Annual Dividend ÷ Historical High Dividend Yield
The larger the discount to fair value, the higher the company ranks.
The ten companies above the thick black line are trading below their estimated fair values and currently offer dividend yields higher than their historical highs. These companies have historically provided the best combination of quality, valuation, and upside potential.
These are our Timely Ten.
While no valuation method is perfect, Dividend Yield Theory has proven to be an exceptionally effective way to identify attractive entry points for high-quality dividend growth companies. Used alongside our quality-first investment process, it helps us deploy capital with greater discipline while removing much of the emotion from investment decisions.
Takeaway
This month’s Canadian and American Timely Ten lists reinforce the importance of combining quality with valuation.
Intact Financial, Metro, Waste Connections and WEC Energy are becoming more attractively priced, while Thomson Reuters, CME and ICE demonstrate how quickly the market can recognize value once sentiment improves.
The Timely Ten is not designed to predict market bottoms or short-term price movements. Its purpose is to identify high-quality dividend growth companies trading at sensible prices so we are prepared to act when opportunity appears.
Looking for a helping hand in the market? Members of Magic Pants Dividend Growth Investing get exclusive ideas and guidance to navigate any climate.
The Magic Pants model portfolios (Canadian and American) are real-money, dividend-growth portfolios funded with actual capital and executed in live accounts. Every position shown is owned, sized, and tracked in real time using our disciplined DGI process.
Become a PAID subscriber, and I’ll show you exactly how I do it. In addition, gain full access to this post and exclusive, subscriber-only content. We do the work; you stay in control!
DGI Scorecard
The Magic Pants 2026 list (The List) includes 26 Canadian dividend growth stocks, and our new American watchlist (The List-USA) contains 28 companies. Here are the criteria to be considered a candidate on our watchlists:
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'
The dividend growth for The List remained unchanged last week, with an average YTD increase of 6.6% (income).
The price of The List was up last week and now stands at +8.2% YTD (capital).
Top Performers Last Week:
CCL Industries Inc. (CCL-B-T), up +4.82%.
Canadian Natural Resources (CNQ-T), up +4.67%.
TFI International (TFII-N), up +4.40%.
Worst Performer Last Week:
goeasy Ltd. (GSY-T), down -8.22%.
From breaking news to quarterly earnings reports, we break down the week’s biggest headlines to help you make sense of the market.
