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Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow

CIBC strategist Ian de Verteuil believes that, with buyback and dividend restrictions now removed for Canadian companies, payouts to shareholders are set to make new records,

“With the release of third-quarter results, we have much better visibility into the intentions of many Canadian companies – and it is clear to us that they intend to return large amounts of cash to individual investors over the next couple years … We expect both energy and financial companies to ratchet up dividends and buybacks in the coming quarters. These two sectors have traditionally been the most aggressive in returning excess capital to shareholders … We expect buybacks and dividends on the S&P/TSX to reach $30 billion and $90 billion in 2022, respectively. Taken together, these translate into a “Payout Yield” of close to 3.5% at current market levels… S&P/TSX buybacks will likely approach the record levels seen before emergence of COVID19″

“@SBarlow_ROB Payouts to shareholders will set new records in Canada in next 24 months” – (research excerpt) Twitter

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Where payouts are concerned, the news is similarly positive in the U.S. as a new report from BofA Securities entitled 10 reasons for S&P 500 dividend growth highlights,

“1) Demand is high: Almost 40% of US institutionally managed money is in income funds, versus 2010 when the proportion was less than 20%. 2) Low supply: the percentage of companies in the U.S. BofA Research coverage universe with no dividend has jumped from 33% in 2014 to 50% today. 3) Non-zero cash return changes the game – cash in hand could earn an extra 1.25% in a couple of years, based on our economists’ Fed forecasts. A high dividend yield strategy has generated more alpha when cash yields rise vs. fall. 4) >20ppt of lost dividend growth post-COVID: Since 2019, dividends decoupled from earnings and lag by 22ppt. Prior to COVID, the two moved in lockstep (ρ=98%). 5-8): Healthy backdrop for raising dividends, including 5) Leverage: non-Financials’ net debt to mkt cap is 1.2 std dev. below average; 6) EPS stability: EPS recession during COVID far lower than prior 2 recessions; 7) Low (12th percentile) payout ratio for S&P 500: 33% vs. l-t avg. of 50%; 8) Fundamentals: analysts cite risks to 6% of dividend payers vs. 18% in 2020. 9) Tax reform changes the cash return math10) High valuations make buybacks less compelling”

Canadian investors will have to be careful in how they attempt to harvest U.S. dividends because of tax implications.

“@SBarlow_ROB BofA from “10 reasons for S&P 500 dividend growth” – (research excerpt) Twitter

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Morgan Stanley chief Asia economist Chetan Ahya has good and bad news regarding Chinese growth.

He believes the country will avoid a financial crisis, but, on the other hand, he believes the pace of economic expansion is set to slow. This has important negative implications for many commodity prices (although I recognize that crude and copper may have their own dynamics),

“The macro set-up and policy-makers’ preference for orderly defaults imply that policymakers should be able to maintain control over domestic financial conditions (i.e., real rates), allowing China to avoid a financial shock … China’s macro set-up of low foreign currency external debt (at only 9% of GDP), a current account that remains in surplus, low inflation and high real interest rate differentials with the US limits its external funding risk… A total debt/GDP ratio of 284% implies that a lot of growth has been borrowed from the future. Reducing leverage where it is particularly elevated – in this instance the property sector – would mean slower growth there, with implications for overall GDP growth. A related challenge is that net land sales revenues account for 3.3% of GDP and local governments rely on these revenues to fund infrastructure projects. As the policy goal is still to curb excessive leverage in the property sector (i.e., the three red lines) … A key source of funding funding for infrastructure projects faces constraints”

“@SBarlow_ROB Slower growth ahead for China. Good summary from MS” – (research excerpt) Twitter

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Diversion: “What Collective Narcissism Does to Society” – The Atlantic

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