Hi everyone, I just realized that it’s been a while since I put together a good read from the personal finance community post, probably because it takes me a while to put together such articles. Anyway, it’s time to resurrect the good reads articles again.
People have been talking about the pending recession for over a year now. Some people believe that high inflation and high interest rates will trigger the global economy to slow down. Somehow, both the US and Canadian economy remain resilient so far in 2023.
As a reminder, some factors that can trigger a recession include:
high inflation
increasing interest rates
reduced consumer confidence
higher unemployment rate
reduced spending and investment activities
The biggest question is if the economy can continue to grow at a modest rate, instead of shrinking.
Despite the US and Canadian economies remaining quite resilient, we’re seeing some signs that a recession may be coming…
Companies are trimming forces – my company included
Overall economic outlook softness
A slowdown in consumer spending… many retailers have reported this in their earnings
A higher percentage of household income is going toward paying off debt
For people that are still in the accumulation phase, a recession may not necessarily be a bad thing – it will create buying opportunities; for people that are retired or close to retirement, a recession can be more problematic. This is why increasing your cash reserve, reducing equities exposure, and increasing bond exposure are recommended if you are retired or close to retirement.
Many dividend investors are curious whether or not Canadian banks will cut dividends. The Canadian banks have not been performing all that well the past year due to concerns over the Canadian real estate market and mortgages.
In preparation for a potential economic slowdown, Canadian banks have been boosting provisions for bad loans. This is exactly what the Canadian banks did during the early days of the COVID-19 pandemic.
If a recession does happen and people default on their mortgages, will the Canadian banks cut dividends?
Difficult to say.
My view? Canadian Big Five banks didn’t cut dividends during the financial crisis, they also didn’t cut dividends during the COVID-19 pandemic. Chances are, they will hold off on any dividend increases until the dust settles.
I believe the Canadian banks won’t cut dividends. Instead, I believe they’ll simply hold the payout steady.
But my prediction can only be 50% correct at best. I can be completely wrong!
So, what can dividend investors do? First, don’t put all your eggs in one basket. Make sure you are not over-exposed to Canadian banks. Diversification is important.
Since the Canadian economy is heavily tied to the financial and oil & gas sectors, it’s important to invest in other sectors like consumer staples, high tech, and consumer discretionary. Investing outside of Canada, therefore, is extremely important.
Good reads from the PF community
Here are some fantastic personal finance/investing related articles that I came across recently.
Mark at My Own Advisor wondered, Should you have 100% of your portfolio in stocks? – “DIY investors, readers and passionate investors know from my site that there is no universal answer for every investor, so it’s important to think through both the upsides and downsides when it comes to your investing plan… While a 100% equity investment portfolio could make sense for younger investors, decades away from retirement, keeping 100% of your portfolio in stocks as you enter retirement or remain in retirement could introduce unnecessary risk.”
Joseph Carlson discussed things that you need to do before you sell a stock
GYM recently turned 40 and shared 40 Financial Lessons She has learned in 40 years – “Time IN the market is better than timing the markets. Stay invested, stick to your plan. This Visual Capitalist chart illustrates the pitfalls of timing the market. If your money wasn’t invested in the 10 best days of the market, you could lose more than half of your overall return on investment. From 2003 to 2022, $10,000 invested in the S&P500 would yield almost $65,000 but if you missed the 10 best days (which were mostly in 2008 and 2009), you would miss out on more than half of your investment returns than if you kept your money invested.” Congrats GYM on turning 40, you certainly shared similar 40 lessons that I’ve learned.
Mike at The Dividend Guy Blog came up with an interesting Retirement Withdrawal Strategy to avoid panic and enjoy life – “It’s no secret that utilities, REITs, and communications companies, especially telcos, are generous dividend providers. Utilities and telcos are usually mature businesses with stable streams of income, making wealth distribution logical. REITs are obligated to distribute most of their income. Add a few Canadian banks in the mix, you’d already have enough sectors to invest easily 60% of your portfolio, while complying with the “don’t exceed 20% in one sector” rule.“
I really like the 17 Questions That Changed My Life from Tim Ferris – “The question I found most helpful was, “If I could only work two hours per week on my business, what would I do?” Honestly speaking, it was more like, “Yes, I know it’s impossible, but if I had a gun to my head or contracted some horrible disease, and I had to limit work to two hours per week, what would I do to keep things afloat?”
I thoroughly enjoyed The paradox of the “perfect life” from Rad Reads – “Consider this thought experiment. You and I both aspire to lead rich and fulfilling lives. Good lives. Some might even say perfect lives. Let’s imagine that you worked assiduously to get that perfect life. You have the perfect job. Impactful, high-paying and the ability to be hybrid. You had the perfect home. Massive square footage, impeccably furnished and immaculately clean. You had the perfect spouse. Smart, sexy and a wonderful co-parent. You had the perfect body. Low BMI, 6-pack abs and a full head of hair. Things are perfect. Or are they? Just like the guy with $70 million who’s scared that he’ll have to fend off gold diggers – have you created a new set of worries?“
With GIC rate at 5% or higher, is it a good idea to “invest” in GICs? Ben Felix explained why cash is a terrible long-term investment
Katie at Money With Katie explained How to avoid lifestyle creep, don’t live beyond your assets – “It wasn’t until I found myself in a peculiar economic position that a more helpful version of this rule emerged for me: Don’t live beyond your assets.Once I found myself graduating from a median income to a higher one, I straddled the line between two worlds: Do I maintain my exact same lifestyle and invest everything extra, or do I recognize that I can afford a little lifestyle creep?The hard part? There’s no rule of thumb for how to handle such a situation. I felt silly skimping on brand name orange juice, but I was also terrified of backsliding into the old, spend-y habits that used to drain my checking account every month.Just because I was making more money didn’t mean I was wealthy, and I struggled to find balance.”
MONTREAL – Travel company Transat AT Inc. reported a loss in its latest quarter compared with a profit a year earlier as its revenue edged lower.
The parent company of Air Transat says it lost $39.9 million or $1.03 per diluted share in its quarter ended July 31.
The result compared with a profit of $57.3 million or $1.49 per diluted share a year earlier.
Revenue in what was the company’s third quarter totalled $736.2 million, down from $746.3 million in the same quarter last year.
On an adjusted basis, Transat says it lost $1.10 per share in its latest quarter compared with an adjusted profit of $1.10 per share a year earlier.
Transat chief executive Annick Guérard says demand for leisure travel remains healthy, as evidenced by higher traffic, but consumers are increasingly price conscious given the current economic uncertainty.
This report by The Canadian Press was first published Sept. 12, 2024.
Dollarama Inc.’s food aisles may have expanded far beyond sweet treats or piles of gum by the checkout counter in recent years, but its chief executive maintains his company is “not in the grocery business,” even if it’s keeping an eye on the sector.
“It’s just one small part of our store,” Neil Rossy told analysts on a Wednesday call, where he was questioned about the company’s food merchandise and rivals playing in the same space.
“We will keep an eye on all retailers — like all retailers keep an eye on us — to make sure that we’re competitive and we understand what’s out there.”
Over the last decade and as consumers have more recently sought deals, Dollarama’s food merchandise has expanded to include bread and pantry staples like cereal, rice and pasta sold at prices on par or below supermarkets.
However, the competition in the discount segment of the market Dollarama operates in intensified recently when the country’s biggest grocery chain began piloting a new ultra-discount store.
The No Name stores being tested by Loblaw Cos. Ltd. in Windsor, St. Catharines and Brockville, Ont., are billed as 20 per cent cheaper than discount retail competitors including No Frills. The grocery giant is able to offer such cost savings by relying on a smaller store footprint, fewer chilled products and a hearty range of No Name merchandise.
Though Rossy brushed off notions that his company is a supermarket challenger, grocers aren’t off his radar.
“All retailers in Canada are realistic about the fact that everyone is everyone’s competition on any given item or category,” he said.
Rossy declined to reveal how much of the chain’s sales would overlap with Loblaw or the food category, arguing the vast variety of items Dollarama sells is its strength rather than its grocery products alone.
“What makes Dollarama Dollarama is a very wide assortment of different departments that somewhat represent the old five-and-dime local convenience store,” he said.
The breadth of Dollarama’s offerings helped carry the company to a second-quarter profit of $285.9 million, up from $245.8 million in the same quarter last year as its sales rose 7.4 per cent.
The retailer said Wednesday the profit amounted to $1.02 per diluted share for the 13-week period ended July 28, up from 86 cents per diluted share a year earlier.
The period the quarter covers includes the start of summer, when Rossy said the weather was “terrible.”
“The weather got slightly better towards the end of the summer and our sales certainly increased, but not enough to make up for the season’s horrible start,” he said.
Sales totalled $1.56 billion for the quarter, up from $1.46 billion in the same quarter last year.
Comparable store sales, a key metric for retailers, increased 4.7 per cent, while the average transaction was down2.2 per cent and traffic was up seven per cent, RBC analyst Irene Nattel pointed out.
She told investors in a note that the numbers reflect “solid demand as cautious consumers focus on core consumables and everyday essentials.”
Analysts have attributed such behaviour to interest rates that have been slow to drop and high prices of key consumer goods, which are weighing on household budgets.
To cope, many Canadians have spent more time seeking deals, trading down to more affordable brands and forgoing small luxuries they would treat themselves to in better economic times.
“When people feel squeezed, they tend to shy away from discretionary, focus on the basics,” Rossy said. “When people are feeling good about their wallet, they tend to be more lax about the basics and more willing to spend on discretionary.”
The current economic situation has drawn in not just the average Canadian looking to save a buck or two, but also wealthier consumers.
“When the entire economy is feeling slightly squeezed, we get more consumers who might not have to or want to shop at a Dollarama generally or who enjoy shopping at a Dollarama but have the luxury of not having to worry about the price in some other store that they happen to be standing in that has those goods,” Rossy said.
“Well, when times are tougher, they’ll consider the extra five minutes to go to the store next door.”
This report by The Canadian Press was first published Sept. 11, 2024.
TORONTO – The U.S. Consumer Financial Protection Bureau has ordered TD Bank Group to pay US$28 million for repeatedly sharing inaccurate, negative information about its customers to consumer reporting companies.
The agency says TD has to pay US$7.76 million in total to tens of thousands of victims of its illegal actions, along with a US$20 million civil penalty.
It says TD shared information that contained systemic errors about credit card and bank deposit accounts to consumer reporting companies, which can include credit reports as well as screening reports for tenants and employees and other background checks.
CFPB director Rohit Chopra says in a statement that TD threatened the consumer reports of customers with fraudulent information then “barely lifted a finger to fix it,” and that regulators will need to “focus major attention” on TD Bank to change its course.
TD says in a statement it self-identified these issues and proactively worked to improve its practices, and that it is committed to delivering on its responsibilities to its customers.
The bank also faces scrutiny in the U.S. over its anti-money laundering program where it expects to pay more than US$3 billion in monetary penalties to resolve.
This report by The Canadian Press was first published Sept. 11, 2024.
