Last year, I asked you who would have thought 2021 would have been such a great year. We paid the price of karma, and here we are, 12 months later, sitting in the middle of a bear market. This is no ordinary bear market, though; it’s a bear that is hurting many “investment hedges”:
- Bonds suffered as interest rates have increased steadily and it’s not over yet
- Bitcoin suffered as it proved to be nothing, but a tulip
- Gold suffered even though it’s supposed to be an inflation hedge
Only one thing worked in 2022… Oil & Gas!
Do I Regret not Investing in Oil? Not at all
I’ve been quite vocal since 2013 that I don’t like oil & gas stocks. It has nothing to do with where I live (Quebec), and environmental values, and I’m not saying oil stocks are bad investments. When it comes to investing, I would rather focus on the numbers. Numbers tell me energy stocks make bad dividend growers. How many Energy stocks show at least 10 years of dividend growth?
- Enbridge (ENB.TO)
- TC Energy (TRP.TO)
- Canadian Natural Resources (CNQ.TO)
- Imperial Oil (IMO.TO)
- Enterprise Products Partners LP (EPD)
- Magellan Midstream Partners LP (MMP)
- Special mention to Chevron (CVX) and Exxon Mobil (XOM) who didn’t increase their dividends in 2020 but kept the “annual total dividend paid” increase streak alive.
Did I miss anyone? That’s 6 companies (8 if you want to include CVX and XOM) out of 116 companies in our DSR stock screener. To be fair, there are a few duplicates since some stocks are trading on both markets. Therefore, we can say that 6-8% of all energy stocks qualify as long-term dividend growers.
While I clearly missed this opportunity, I also avoided losing a boatload of money in between 2013 and 2020. But most importantly, I stayed loyal to my investment strategy: dividend growth investing. Investing with conviction means that you will miss opportunities. It will also mean that you will make mistakes. However, that conviction will make sure you don’t panic sell, that you make rational decisions, and that you follow a clear plan.
A full podcast series on How to Invest 2023 is available to you now! Get your plan for the year ready, and catch it up!
Today, I will share with you two stocks that are among my Top Picks for 2023. The selection methodology of those companies is explained in this article:
What a Dividend Growth Investor Buys in 2023?
- Market cap: 62B
- Yield: 1.85%
- Revenue growth (5yr, annualized): 12.90%
- EPS growth rate ((5yr, annualized): 76.20%
- Dividend growth rate (5yr, annualized): 10.40%
I selected EQIX, a new stock idea on my recently issued Mike’s buy list. If you are looking for yield, Essex Properties (ESS) is probably a good pick as it is a dividend aristocrat with a 4% yield. But I have determined there is a larger total return opportunity with EQIX.
Equinix is a rare REIT showing a perfect dividend triangle. EQIX is the world’s largest data center, growing quarter after quarter. The beauty behind the EQIX business model is that it is both poised for strong growth and hard to replicate. EQIX excels in matching customers in the data and cloud service arenas with each other. Its cloud-based global platform, through a distributed infrastructure, is a critical source of differentiation making EQIX the partner of choice for some of the largest technology companies. With over 10,000 customers including 1,800 networks, EQIX is a well-diversified cash cow.
While management has warned that a weaker economy could affect demand temporarily, this scenario has not shown in their latest quarter. In fact, Equinix did better than expected with revenue up 10% and FFO per share up 23%. EQIX delivered their sixth consecutive quarter of record channel bookings, accounting for more than 35% of total bookings. For 2023, the company expects AFFO per share to grow by 7% to 10%. This is a keeper!
- Market cap: 106B
- Yield: 2.75%
- Revenue growth (5yr, annualized): 9.60%
- EPS growth rate ((5yr, annualized): 13.55%
- Dividend growth rate (5yr, annualized): 12.50%
I can’t get enough of BlackRock! Back in 2013 when we created our 25K and 100K DSR portfolios, BLK was among the first companies identified as a great candidate.
The purpose of this yearly selection is to provide you with stock ideas that should beat their respective sectors in 2023. This forces me to start the tracking on January 1st. For BLK, I would probably wait for a little as I expect more volatility at the beginning of the year. If I could pick a date in March or April, I’d be even more confident. If the market anticipates more interest rate hikes (which is expected to continue in the first half of 2023), it will be a tough market. Bear markets are bad for asset managers since they make money on fees charged on the assets they manage. Lower valuations then equal lower fees. We have seen BLK’s dividend triangle (revenue and EPS) slowing down in the second half of 2022. Chances are this will continue in early 2023. This should put more pressure on BLK’s stock price and open the door for a great buying opportunity. If BLK hits a 3% yield again, it would be a great buy signal.
As opposed to many asset managers in the U.S., BlackRock will surf on the passive investment trend with its iShares ETFs. The company offers pretty much every type of investment solution for every type of investor. BLK’s wide variety of products will provide a solid base of income and support dividend growth.
Find out about 6 companies that will crush 2023
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: Financials, Information Technology, and Utilities.
You can download 6 of my top 23 for 2023 right here:
Disclaimer: I hold shares of BLK.
I liked SYY as well and I believe I will take my decision after they file their latest quarterly report.
At the moment their Free Cash Payout ratio of 50,58% is just a little above my target of 50% and their Price to Free Cash Flow is 21,97 a little above of my target of 20.
However, their cash return on capital employed of 5,76% is below my target 17% quite much, so I will dig deeper into this.
Thanks for sharing this stock.