Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
CIBC strategist Ian de Verteuil detailed the record outpouring of dividend payouts and buybacks for Canadian companies,
“Payouts by Canadian companies recently reached a record $170 billion over the previous 12 months. Furthermore, for the first time in the last quarter century, Payout Yield (dividends plus buybacks divided by price) for the S&P/TSX exceeded that offered by the S&P 500. It is reasonable to assume some moderation in payouts, as commodity prices have corrected, bank capital ratios are moving higher and the buyback tax is on the horizon. Having said that, we believe Canadian investors should still expect payouts to remain above 4 per cent, unless a severe recession develops… Payouts have been further bolstered by a sharp spike in buyback activity. In fact, the Canadian payout yield reached 5.5 per cent earlier this year – a record level and surpassing the 5.0-per-cent peak offered by the S&P 500. Several factors have contributed to the recent buyback craze. Most importantly, Canadian companies are generating significant amounts of earnings and cashflow, particularly in the resource sectors. Additionally, the Federal government commitment to impose a 2-per-cent buyback tax in 2024 has likely accelerated some repurchases. We do expect overall payouts to fall in the coming quarters. In this report, we analyse the distributions of the recent past, also adjusting for Special Dividends and Substantial Issuer Bids. We estimate payouts will drop to $140 billion – still good for a payout yield of 4.4per cent.”
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BMO Canadian rates and macro strategist Benjamin Reitzes described why the economy has remained resilient despite numerous forecasts for recession,
“The beat goes on with another strong run of Canadian data. This time it was retail sales, with April spending climbing 1.1 per cent. Most of that gain was due to higher prices, as volumes were up a modest 0.3 per cent, but it doesn’t change the fact that consumers appear to be more than willing to spend, spend, spend! … Q1 GDP growth came in above the BoC’s forecast, driven by a 5.7-per-cent annualized surge in household consumption. Policymakers discussed a few potential drivers of that strength: 1) the lagged effect of rate hikes; 2) pent-up demand; 3) excess savings and a tight labour market; and, 4) population growth. The first three factors are a reasonable rationale to continue with rate hikes, while strong population growth isn’t likely to be impacted much by higher rates… A related point of resilience noted in the minutes was the rebound in the housing market. Home sales turned higher after the BoC’s January pause signal, and prices have followed suit in the past couple of months despite mortgage rates rising substantially over the past year. As my colleagues Doug Porter and Robert Kavcic have rightfully stated a number of times: If the most interest rate sensitive part of the economy isn’t buckling under the pressure of higher rates, then policy rates likely aren’t high enough… Resilience was the theme this week, and something BoC policymakers keyed on to drive the June 7 decision to hike rates. We get another set of top-tier data next week, none of which are expected to change the outlook for another 25 bp hike at the next policy meeting on July 12.”
“Canadian Economy Remains Resilient” – BMO Economics
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BofA Securities analyst Vivek Arya believes the hype surrounding artificial intelligence (AI) is entirely justified and picks stock winners,
“The 650 Group believes AI Networking market (including switch silicon) will grow to $10bn+ in 2027 from $2bn in 2022, with Ethernet growing to $6bn+ from $0.5bn and InfiniBand to $4bn from $1.5bn. Overall, AI Networking TAM [total addressable market] should grow at nearly 40% CAGR [compound annual growth rate] through CY27, driven by the growth in bandwidth for AI workloads at 100%+ CAGR, far outpacing bandwidth growth of 30-40% CAGR for typical data centers… we highlight the emerging battle between networking protocols based on InfiniBand (IB, the incumbent high-speed low-latency AI connectivity standard) and Ethernet (the insurgent that is currently the ubiquitous protocol in traditional networking systems optimized for reliability and compatibility). In our view, both IB and Ethernet will co-exist, but Ethernet is likely to grow faster led by silicon offerings from Broadcom, Nvidia, Marvell and Cisco”.
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Diversion: “Behold the likely face of a 7th-century Anglo-Saxon teenage girl” – Ars Technica
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