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The word ‘dividend’ is like magic in the Report on Business newsroom. Judging by statistics on my own columns, one ‘dividend’ in the headline provides a boost to internet traffic statistics of anywhere between 50 and 150 per cent, on average.

This sounds like a bit of a mania, but why not? An aging Canadian population creates near-bottomless demand for income products, and performance of dividend heavy sectors like REITs and utilities has been more than solid, even if the monthly payments aren’t counted.

A slowing global growth environment has pushed bond yields much lower in 2019, and this makes dividend stocks even more attractive by comparison.

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Morgan Stanley’s widely-followed U.S. equity strategist Michael Wilson recently warned investors about crowding in equity income sectors, but importantly his advice was tactical – short term – rather than an extended forecast.

“Investors have adjusted for decelerations by moving into assets with secular growth, quality, and some defensiveness … With many counting on the same stocks to ride out a slowing growth environment, a general sell-off in equities could force selling and liquidity issues that impact portfolios and make certain pockets of the market act less defensively than their fundamentals would suggest.”

The U.S. Federal Reserve’s attempts to tighten U.S. money supply in the fourth quarter of 2018 proved premature at best. The central bank was forced to backtrack on the endeavour and the dividend sectors that were hit hardest last year are among the top performing sectors of 2019 so far.

The Fed is now expected to cut rates numerous times in the next 18 months and will be extremely reluctant to raise them for a long time afterwards. While there are numerous differences between the economic conditions of the western world now and Japan in the 1990s, it does seem like a Japan-like period of ultra-low rates is ahead for a long time.

Again, ‘low rates forever’ situations are great for dividend stocks.

There is only one potential fundamental danger for dividend stocks – credit quality – and there’s little or no signs of stress there. If, down the road, recession conditions threaten revenue growth for dividend payers and their costs of borrowing in debt markets jumps, it will be time to worry. But that’s down the road.

There is one thing about dividend stocks that concerns me and it creates a sense of unease that’s hard to shake. In the past, when a significant segment of the investing public does the same thing, buys the same type of stocks, for a long time, the eventual reckoning was painful.

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There are no negative issues on the horizon for equity income investors and they should enjoy the ride. It’s never too early, on the other hand, to start devising strategies to prevent overstaying their welcome.

-- Scott Barlow, Globe and Mail market strategist

This is the Globe Investor newsletter, published three times each week. If someone has forwarded this e-mail newsletter to you or you’re reading this on the web, you can sign up for the newsletter and others on our newsletter signup page.

Stocks to ponder

Ag Growth International Inc. (AFN-T) Year-to-date, the stock price has rallied 18 per cent with a further 30 per cent gain anticipated by analysts over the next 12 months. The company offers its shareholders an attractive dividend yield, currently over 4 per cent, and has a conservative payout ratio. Jennifer Dowty profiles the stock.

Slack The hottest Canadian-led tech company outside of Canada will list publicly this week without an initial public offering. Led by British Columbia-born serial entrepreneur Stewart Butterfield, Slack Technologies Inc. will go public on the New York Stock Exchange on Thursday with a direct listing. While the go-public strategy, used by music-streamer Spotify Technology SA, lets a company list shares without raising additional funds, it will still allow investors to buy into the increasingly popular office-communication tool. Josh O’Kane reports.

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The Rundown

Changes to Gordon Pape’s Buy-and-Hold portfolio

This portfolio consists mainly of blue-chip stocks that offer long-term growth potential. It also has a small fixed-income holding. Since inception, it has a total return of 114.2 per cent. Gordon Pape is impressed, and he’s buying more shares for the portfolio.

Buybacks soar on the TSX, but there’s a downside

Canadian companies reluctant to reinvest excess cash are instead buying back their own shares at a furious pace. Buybacks by companies in the S&P/TSX Composite Index soared to nearly $50-billion in the 12 months up to the end of the first quarter. As a proportion of the whole stock market, that’s around 50 per cent higher than the previous record set a decade ago, according to a report by Ian de Verteuil, head of portfolio strategy for CIBC World Markets. Tim Shufelt reports.

Frontera Energy to be added to TSX Composite, four other stocks to be removed

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After major changes in Canada’s stock indexes earlier this year, investors will see a much quieter rebalancing as the second quarter winds down. S&P Dow Jones Indices said late Friday that it will add one stock – Frontera Energy Corp. – to the S&P/TSX Composite Index and remove four: CES Energy Solutions Corp., Fortuna Silver Mines Inc., New Gold Inc. and Uni-Select Inc. David Milstead reports.

Are high-tech veggie burgers the start of a huge new industry, or a fake-beef bubble?

Forget those homemade lentil pucks your vegetarian cousin used to bring to family barbecues. From fast-food restaurants to investing strategy sessions, a new wave of high-tech veggie burgers has suddenly become the entrée of choice for both foodies and money managers. The fake-meat revolution is most evident on Wall Street, where shares of Beyond Meat Inc., purveyor of pea-protein patties, have shot up sixfold since going public in early May. The company’s rise to a multibillion-dollar valuation has burst past all expectations for veggie burgers and similar products. If enthusiasts are right, the still tiny California-based company, with only US$87.9-million in sales last year, could be just the first of several startups to cash in on the growing appetite for artificial beef and similar fare. Ian McGugan takes an indepth look at the trend and the opportunity for investors.

Also: Which meatless burger truly has the sizzle to satisfy? Our taste-testing challenge crowns a winner

All eyes on Fed as stock market pines for rate cut

The Federal Open Market Committee meeting this week is shaping up as a pivotal one for Wall Street, with stocks primed for a sell-off should the Fed fail to take an even more dovish tilt after policy-makers raised expectations for a rate cut in recent weeks. Read more from Reuters.

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Others (for subscribers)

Monday’s Insider Report: Four are buyers of this stock yielding 7.6%

Ask Globe Investor

Question: My wife and I each own units of Brookfield Infrastructure Partners LP. I purchased mine (ticker BIP) on the New York Stock Exchange in U.S. dollars and she bought hers (ticker BIP.UN) on the Toronto Stock Exchange in Canadian dollars. Our brokerage statements indicate that, on Dec. 29, 2017, the units closed at US$44.81 and $56.38, respectively. On April 30, 2019, they closed at US$41.38 and $55.48. So BIP lost US$3.43 while BIP.UN only fell 90 cents (Canadian). Nobody at my brokerage or the company could explain why the U.S. units dropped 7.7 per cent – nearly five times as much as the Canadian units, which fell just 1.6 per cent. Can you help?

Answer: Based on this letter and others I’ve received, interlisted stocks are a big source of confusion for investors. With dozens of Canadian companies – including banks, insurers, utilities and energy producers – trading on both sides of the border, it’s worth understanding why prices of interlisted stocks behave the way they do.

As you’ll see when we dig into the Brookfield Infrastructure example, it all comes down to currency exchange rates.

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At the end of 2017, BIP’s price on the NYSE was US$44.81 and the Canadian dollar was trading at about 79.5 US cents. To convert BIP’s NYSE price into Canadian dollars, you would divide US$44.81 by 0.795, which equals $56.36. Notice that this is almost identical to BIP.UN’s price on the TSX at the time of $56.38.

Now fast forward to April 30, 2019. BIP’s price on the NYSE was US$41.38 and the Canadian dollar had fallen to about 74.7 US cents. Dividing US$41.38 by 0.747 gives a value of $55.39 – which, again, is pretty close to BIP.UN’s actual price of $55.48 on the TSX. Keep in mind that I am using approximate exchange rates, which may explain why the prices don’t match exactly. (Market inefficiencies may also play a role, although any price discrepancies between the two markets would not last long as arbitrageurs would quickly close the gap.)

The key thing to understand here is that, when the exchange rate fluctuates, the Canadian and U.S. prices of an interlisted stock adjust to reflect the relative value of the currencies. All else being equal, a falling loonie causes the Canadian-listed stock to perform better (or, in this case, less badly) in Canadian dollars than its U.S.-listed counterpart in U.S. dollars, while a rising loonie has the opposite effect. But the shares themselves are identical and – as the above calculations demonstrate – the performance difference disappears when both stocks are valued in the same currency. So, although BIP appeared to underperform BIP.UN, the interlisted units had virtually identical returns in Canadian dollars.

Read more questions and answers on this topic

--John Heinzl

Do you have a question for Globe Investor? Send it our way via this form. Questions and answers will be edited for length.

What’s up in the days ahead

Energy stocks are in the dumps. Will this week’s decision on the Trans Mountain pipeline change that? Tim Shufelt will take a look.

Click here to see the Globe Investor earnings and economic news calendar.

More Globe Investor coverage

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Compiled by Darcy Keith

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