Canada’s mortgage rates are creeping up — even though the country’s central bank has slashed borrowing costs to combat the COVID-19 pandemic.
That’s due to the “enormous pressure” Canadian banks face amid disruptions caused by the outbreak, said Sherry Cooper, chief economist at Dominion Lending Centers.
“The costs of funds for banks is skyrocketing and bank earnings are plunging,” Cooper said Monday in a phone interview. “Every single business they have ever loaned to is subject to a massive decline in revenues, and therefore their own revenues are going down because nobody is taking out new business with banks except to extend debt.”
The Bank of Canada has cut its overnight interest rate three times this month, bringing the benchmark to 0.25 per cent. The large Canadian banks matched those moves by cutting their prime rates, which influence borrowing rates for variable mortgages and credit lines, to 2.45 per cent from 3.95 per cent at the start of the month.
As those rates have dropped, banks have been eliminating discounts off prime on variable mortgages. At the start of the month, qualified borrowers could get a rate of prime minus 1 per cent from HSBC Canada, for example, while Canada’s large domestic lenders were also offering “prime minus” deals as well.
But those discounts have shrunk by 75 to 85 basis points, said Rob McLister, founder of mortgage comparison website RateSpy.com.
Typical five-year fixed rates at also rising. Rates at large Canadian bank are now at 2.99 per cent to 3.04 per cent versus around 2.49 per cent to 2.59 per cent at the end of February, McLister said.
“The big banks are leading the charge higher here, on both the fixed side and the variable side,” he said. Preferred borrowers can still get some prime minus deals at big banks, but they’re more like prime minus 10 or 15 basis points.
McLister said the rising cost of short-term funding, used for variable mortgages, explains the jump. Spreads are wide, fewer people want to lend big banks money at preferable pricing, so that gets passed through to the borrower, McLister said.
Fixed-rate mortgages, which are tied more to swings in the bond market, are also creeping up after Canadian bond yields hit record lows earlier in the month, added Cooper.
“The banks just can’t afford to price their loans at what are de minimis bond yield levels,” Cooper said.
She expects banks to start charging prime plus a premium for variable loans, as well as higher rates for fixed mortgages than those seen earlier in the year.
“I believe mortgage rates will trend around current levels,” Cooper said. “I don’t think interest rates in general are going to be a lot higher in the next year.”
Alberta partners with fast-food chains to offer free masks at drive-thrus – CBC.ca
Albertans will be able to pick up free non-medical masks from the drive-thrus of A&W, McDonald’s and Tim Hortons starting in early June.
The Alberta government is distributing 20 million masks meant to help limit the spread of COVID-19, said Health Minister Tyler Shandro during a press conference Friday.
The masks are for situations where physical distancing is difficult to maintain, such as on public transit or while shopping, Shandro said.
“We recognize that as the province relaunches and we all adapt to our new normal, we all may sometimes find ourselves in a situation where physical distancing may not be possible.”
The province is distributing the masks through the three restaurant chains because they provide an ease of access, said the province’s health minister.
“We chose this method, quite honestly, because these partners have access through these 600 sites to about 95 per cent of our population,” Shandro said. “These three partners are doing it without expense to the Alberta taxpayer.”
Each Albertan is allowed one package of four masks, while supplies last. The masks also come with instructions on how to wear and dispose of them. No purchase is necessary.
“This is not meant to provide Albertans with an unlimited supply,” Shandro said. “We’re encouraging people to source their own masks on an ongoing basis.”
The province will also look at other ways to distribute the masks, like at high-risk transmission areas such as transit and places of worship, for people who can’t access one of the drive-thru locations.
A budget of $350,000 has been set aside to fill the gap in distribution, Shandro said.
The province is also working with municipalities, First Nations communities, Métis settlements and local agencies to distribute the non-medical masks to those who need them.
Canadian Stocks to Buy With Wide Moats – The Motley Fool Canada
Investing in companies with wide moats is one of the best ways to build a portfolio of high-quality companies. In times of significant volatility, finding Canadian stocks to buy with a strong competitive advantage can protect against considerable downside.
If you take a quick glance at the list, you will find some of the best blue-chip companies in the country. Outside of those in the financial sector, most have outperformed the S&P/TSX Index during this pandemic. The odds are that they will continue to outperform in the event the country sees a second wave and more economic hardship.
With that in mind, I consider them the top Canadian stocks to buy to protect your portfolio against considerable losses.
A top utility
Despite poor earnings, pulled guidance, and increasing uncertainty, the markets are showing strength. Over the past month, the S&P/TSX Index is up by 5.05%. In contrast, utilities are showing weakness. Case in point, Fortis (TSX:FTS)(NYSE:FTS) is now down by approximately 3% over the same period.
Despite the recent underperformance, Fortis is holding up quite well during this pandemic. The stock price is only down 3.66% year to date, far outperforming the 11.66% loss of the Index.
The company remains one of the best defensive stocks on the TSX and is a top Canadian stock to buy. This has proven to be true regardless of economic condition. We are in an era of low interest rates, which is a positive for utilities. It means lowering borrowing costs and higher profitability.
Fortis has consistently outperformed the TSX. Over the past decade, it has more than tripled the returns of the index. The company also has an attractive yield (3.71%) and the second-longest dividend-growth streak in the country (46 years). It expects to grow the dividend by 6% annually through 2024.
Analysts have a one-year price target of $59.45, which implies 14.5% upside from today’s price of $51.91 per share. It is trading at only 13.82 times earnings, well below historical and industry averages.
Fortis is a top Canadian stock to buy. It provides reliable income and steady growth at reasonable valuations.
A top-performing Canadian stock to buy
When it comes to recent and yearly performance, one of the top companies has been Canadian Pacific Railway (TSX:CP)(NYSE:CP). As one of the two largest railways in Canada, it is easy to quantify and understand CP Rail’s considerable moat.
Year to date, the company’s stock price is up by 3.98%, and it has a one-year return of 14.95%. Over the past decade, shareholders have seen their investment handily beat the market, with total gains of 507%.
Despite a slowdown in economic activity, analysts still expect the company to post positive earnings growth in 2020. Looking beyond this year, the expectation is for earnings growth in the low teens. This makes it one of the fastest-growing blue-chip companies on the TSX Index.
As of writing, the company is trading in line with the estimating one-year target of $345 per share. It is also trading in line with its historical valuations. However, the company rarely trades at a big discount. This makes CP Rail a rare Canadian stock to buy at any point in time.
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Laurentian slashing dividend 40% in rare move for a Canadian lender – BNNBloomberg.ca
Laurentian Bank of Canada announced an uncommon move for a Canadian bank on Friday by sharply reducing its payout to investors.
Effective with the payment in August, Laurentian’s quarterly dividend will fall 40 per cent to $0.40 per share.
The bank justified the decision by saying it will provide greater flexibility to support its strategic plan and bolster its balance sheet.
“We have a strong capital and liquidity position, and disciplined risk management, but it is a time for prudence,” said CEO François Desjardins in a release.
“Although we believe that current earnings are not reflective of the future earnings power of the organisation, we have reduced the dividend to $0.40 per share which improves operational flexibility until we reap the anticipated benefits of our strategic plan.”
Laurentian on Friday also reported a 79 per cent drop in fiscal second-quarter net income as profit fell to $8.9 million for the three-month period ending April 30.
The Montreal-based bank said it booked $54.9 million in provisions for credit losses during the quarter, compared to $9.2 million a year earlier.
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