Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
The strategy team at Scotiabank has developed a Canadian dividend investing strategy,
“Canadian dividend strategies face challenges from more cyclical sources of dividends. Financials/Banks and Energy provide the bulk of TSX dividends. Their DPS could easily swing from growth to cuts in a recession. For now, extremely low valuation levels in our Dividend Growers index point to some of these risks being priced in. Moreover, Energy could potentially be a safer-than-expected option in the current cycle (healthy balance sheets could endure low WTI prices without necessarily triggering dividend cuts)… he best-known Canadian dividend ETFs are managing to outperform the TSX so far in 2022. While that’s good news, they suffer from the same issues as their U.S. ETFs peers: their performances vary greatly … Simply buying above-median-yielding companies is not an optimal strategy: it does not always protect in downturns (see 2008, 2020) as they become yield traps at risk of dividend cuts. Moreover, the strategy is overly reliant on Banks beating the market in bull times … Companies with a sustained record of increasing their dividend over time are the only ones to deliver strong, consistent, above average return relative to the TSX since 2001. They also tend to provide solid defense in bear markets … Whereas in the U.S., High Growers with Room to Increase was the clear outperforming strategy over the long run, this is not the case in Canada. Low Dividend Growers beat High Dividend Growers … Overall, given how unbalanced our High vs. Low Dividend Growers strategies are, the highest risk-adjusted return comes from simply buying the overall Dividend Growers basket (i.e., names that have hiked dividend only over the last five years, with at least one in the last two years)”
The report included a large list of dividend growing stocks – too long to recount the whole thing here. Companies potentially of interest among the top 30 dividend growers include: Canadian Natural Resources Ltd. (CNQ-T), Quebecor Inc. (QBR.B-T), Lundin Mining Corp. (LUN-T), Dundee Precious Metals Inc. (DPM-T), Canadian Tire Corp. Ltd. (CTC.A-T), Restaurant Brands International Inc. (QSR-T), Manulife Financial Corp. (MFC-T), Bank of Montreal (BMO-T), Power Corp. of Canada (POW-T), Toronto-Dominion Bank (TD-T), Royal Bank of Canada (RY-T), Bank of Nova Scotia (BNS-T), Jamieson Wellness Inc. (JWEL-T) and Canadian Imperial Bank of Commerce (CM-T).
“Scotiabank: Dividend grower stocks with room for increase” – (tables) Twitter
Citi strategist Scott Chronert lowered his forecasts for the S&P 500 which starts this week at 3586,
“On Earnings — Our unique approach to expected earnings incorporates bottom up, top down and company specific inputs. We project $215 in S&P 500 op earnings for full year ‘23. The ‘22 starting point is lowered to $221 from our long-standing $226 estimate. Our -3.1% earnings growth projection for ‘23 is relative to a +7.9% current bottom up consensus. On Multiples — A 3900 year-end ‘23 target premised on $215 of TTM earnings relates to a roughly 18x PE. Over the past four recessions, the pattern has been for multiples to work lower early in a recession and then higher toward the end of a recession. Typically, the price action leads earnings on the way down, and on the way back up.”
“Citi cuts S&P 500 forecasts” – (research excerpts) Twitter
Morgan Stanley U.S. equity strategist, who correctly doubled down on his pessimistic outlook a month ago, provided more bearishness in the bank’s weekly Sunday Start report,
“The month of September followed its typical seasonal pattern as one of the worst months of the year, and given how bad this year has been, that wasn’t an easy call when we doubled down on our bearish view for stocks four weeks ago … The US dollar is very important for the direction of risk markets and this is why we track the growth of M2 so closely. In fact, the primary reason for our mid-cycle transition call in March 2021 was our observation that M2 growth had peaked. Indeed, this is exactly when the most speculative assets in the marketplace peaked and began to suffer – i.e., crypto currencies, SPACs, recent IPOs, and profitless growth stocks trading at excessive valuations. Now, we find M2 growth in what we call the ‘danger zone’– the area where financial/economic accidents tend to occur. In many ways, that’s exactly what happened in the gilts market last week … In our view, such [U.S. dollar] tightness is unsustainable because it will lead to intolerable economic and financial stress, and the problem can be fixed by the Fed, if it so chooses … Bottom line, in the absence of a Fed pivot, stocks are likely headed lower. Conversely, a Fed pivot, or the anticipation of one, can still lead to sharp rallies. Just keep in mind that the light at the end of the tunnel you might see if that happens is actually the freight train of the oncoming earnings recession that the Fed cannot stop. "
“MS’s Wilson: “the light at the end of the tunnel you might see if that happens is actually the freight train of the oncoming earnings recession " – (research excerpt) Twitter
Diversion: “Ex-eBay security execs imprisoned for stalking journalists who cover eBay” – Arstechnica
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