A few weeks ago, I referred to dividend stocks as a coiled spring, just waiting for the signal to pop.
It appears to have happened. November was the best month we’ve seen for dividend-paying securities since the early days of the pandemic.
These securities are sometimes called the stock market’s equivalent to bonds because they tend to react in the same way to movements in interest rates. When central banks are cutting, bond prices rise as yields fall (the two have an inverse relationship). The same is true for many (but not all) dividend stocks. As bond yields rise, investors demand a better return from higher-risk stocks, putting downward pressure on their prices.
So it’s not surprising that the steady beat of rate increases over the past 18 months by the Bank of Canada and the U.S. Federal Reserve Board have taken their toll. Last year was the worst for bond investors since the early 1980s. Dividend stocks were also pounded. Conservative portfolios with large positions in “safe” securities such as utilities, pipelines and telecoms saw their market values slashed by 12 per cent or more.
Now the carnage seems to be over. Although both the Fed and the BoC are warning that more rate hikes could come if inflation doesn’t return to its target level of 2 per cent, no one seems to believe them. The market thinks rate hikes are over and expects we’ll actually see cuts in 2024.
The 1.1-per-cent drop in Canada’s GDP in the third quarter, announced last week, only served to reinforce that view.
Here’s what all this has meant to the key interest-sensitive sectors.
These core infrastructure stocks fell 13.28 per cent over the year to Nov. 30. But in November alone, the S&P/TSX Capped Utilities Index jumped 6.77 per cent. Gainers included Brookfield Infrastructure Partners LP (BIP.UN-T), which added an impressive 13.1 per cent in the month; AltaGas Ltd. (ALA-T), up 7.1 per cent; Hydro One Ltd. (H-T), up 4.9 per cent; Capital Power Corp. (CPX-T), ahead 4 per cent; and Canadian Utilities Ltd. (CU-T), which gained 3.6 per cent.
The past 12 months saw the TSX telecom sector decline 12.61 per cent. But in November, it posted a gain of 7.09 per cent, showing the same pattern as utilities. Rogers Communications Inc. (RCI.B-T) had a huge month, advancing 13.7 per cent. Telus Corp. (T-T) was also impressive, gaining 8.6 per cent. BCE Inc. (BCE-T) was a laggard, with a gain of 3.8 per cent.
It was the same story: a 12-month loss of 12.5 per cent but a one-month gain of 7.87 per cent. We saw nice November gains from Canadian Apartment Properties REIT (CAR.UN-T), which jumped 13.3 per cent, and Granite REIT (GRT.UN-T), up 8.8 per cent. However, the REIT gains were uneven across the sector. Apartment REITs did best, while office and retail REITs tended to lag.
As the calendar turned to December, dividend stocks continued to rally, as the TSX jumped almost 217 points Friday. It appears the coiled spring has sprung.
Gordon Pape is the editor and publisher of the Internet Wealth Builder and Income Investor newsletters.
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