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

BMO chief strategist Brian Belski updated his portfolio of top picks for North American dividend growth stocks,

“The portfolio is an actively traded model designed to encapsulate our dividend growth methodologies, with a particular focus on companies that offer attractive and quantifiable income and dividend growth characteristics. Decision-making inputs: US and Canadian publicly traded companies that pay a dividend and that are actively listed within the S&P 500 and/or S&P/TSX Indices. 60-70% of portfolio made up of core dividend names, 10-30% tactical weighting in high yield focus names, and 10-30% tactical weighting in dividend growth names.”

The top five largest holdings for the portfolio are:

  • Enbridge Inc. (ENB-T);
  • Bank of America Corp. (BAC-N);
  • Brookfield Infrastructure Partners LP (BIP.UN-T);
  • Toronto Dominion Bank (TD-T);
  • TC Energy Corp. (TRP-T).

The top five performers for the third quarter were:

  • Restaurant Brands International Inc. (QSR-T);
  • Ameriprise Financial Inc. (AMP-N);
  • Target Corp. (TGT-N);
  • Waste Management Inc. (WM-N);
  • Morgan Stanley (MS-N).

The worst five performers were:

  • Comcast Corp. (CCZ-N);
  • Verizon Communications Inc. (VZ-N);
  • Eastman Chemical Co. (EMN-N);
  • TC Energy Corp. (TRP-T);
  • LyondellBasell Industries NV (LYB-N).


I would argue that downward earnings revisions are the biggest risk for U.S. markets as third-quarter earnings season begins.

Goldman Sachs strategist David Kostin offered an effective summary of the issues as reporting kicks off,

“Consensus currently expects S&P 500 firms will post revenue 13% above the comparable quarter one year ago, a 75 bp net margin decline to 11.8%, and EPS growth of 3%. Elevated inflation represents a tailwind for nominal top-line revenue but a headwind for margins. While sales are expected to grow across all sectors, margins are expected to contract in all sectors except Energy and Industrials … The 3Q profit outlook deteriorated as the quarter progressed. At the start of July, consensus expected year/year EPS growth of +10% but that has since been lowered to +3%. The major culprit of the reduced earnings growth was a degradation in the outlook for margins. At the start of the quarter, consensus expected 3Q margins would increase by 20 bp to 12.7% but during the past three months the forecast has been slashed to 11.8%. This would represent a year/year decline of 75 bp. Information Technology 3Q net margins are now expected to be more than 100 bp lower than anticipated in July (25% vs. 23%) and Communication Services 3Q margin forecasts have been cut by more than 150 bp to 14% from 16% in July… Excluding Energy, EPS is expected to fall by 3% and margins to contract by 132 bp. We expect smaller positive surprises in 3Q compared with 1H 2022 and negative revisions to 4Q and 2023 consensus estimates. Topics for managements to discuss: (1) headwind to sales due to a stronger US dollar, (2) headwind to margins due to elevated inflation and high inventories, (3) tax changes effective in 2023. Own stocks with high US sales vs. firms with high foreign sales "


BMO bank analyst Sohrab Movahedi sees Royal Bank of Canada (RY-T) as the most likely buyer of HSBC Canada’s operations,

“HSBC has launched a strategic review of its Canadian business, strongly suggesting that a complete divestment is on the table. With a book value of ~$5B, and assumed sale price of ~$10B, our analysis suggests that only RY and NA would see notable earnings accretion from a potential acquisition; but it could be somewhat dilutive to NA’s RoRWA [return on risk-weighted assets]. Nonetheless, all the banks are likely mulling the opportunity and while the numbers do appear most favourable for RY, the deal is possible for all of the “Big 5″ (excl. restricted BMO)”


Diversion: “Photos of the Week: Giant Duck, Blessed Dogs, Bubble Tram” – The Atlantic

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