In the summer of 2002, the Bank of Canada published an article that described how the institution decides where to set interest rates.
“The key to a successful monetary policy,” wrote Tiff Macklem, then the central bank’s impressive young research chief, “is looking ahead to the most likely outcome and reacting promptly and appropriately to surprises, so that inflation is kept on target or brought back to target over a year or two.”
Macklem, now a distinguished veteran of global finance, will soon have the power to put those words into action, after being tapped by Prime Minister Justin Trudeau to take over as Bank of Canada governor when Stephen Poloz retires early next month.
He will be well prepared for the post. Macklem spent most of a three-decade career in Ottawa at the central bank, climbing to the post of senior deputy governor before departing in 2014 to run the University of Toronto’s Rotman School of Management.
The challenge will be one that no other governor has ever seen, however: Macklem is being tasked with crafting a response to the COVID-19 pandemic and the associated economic fallout. A good indication of how the new governor will steer Canada through one of its greatest crises may be his own words.
Macklem has experience with crises, having served as an associate deputy finance minister during the Great Recession a decade ago.
In an October 2010 speech in Montreal, Macklem’s first after returning to the central bank as senior deputy governor, he noted that the Bank of Canada had successfully calmed investors by offering forward guidance on the path for its key rate, something that has not taken place yet under Poloz.
It is, however, one of the unconventional tools the central bank could still use, in addition to its current large-scale bond-buying program.
“As Canada heads into a period where it will have to deal with an especially weak currency, high levels of debt and the overhang of an economic crisis, some Carney-era-type guidance might be just what the doctor ordered,” said Frances Donald, chief economist at Manulife Investment Management, referring to Mark Carney, Macklem’s former boss at the Bank of Canada.
About four years after he left the bank, the federal government also created the Expert Panel on Sustainable Finance, chaired by Macklem, and which last year turned in a final report with recommendations regarding the Bank of Canada.
The report suggested the central bank help lead efforts to incorporate climate risks in the federal supervision of financial institutions and in encouraging Canadian asset managers to review their “internal climate change competency.”
“We will be looking at climate change, along with a host of other major economic forces acting on the economy, to the extent that they affect inflation,” Macklem told reporters on Friday.
Macklem is well acquainted with the Bank of Canada’s inflation-control target of two per cent, as he contributed to the research that went into the decision to adopt the policy in 1991.
The early reviews of Macklem’s appointment suggest he will not shake up the central-bank’s policy too much, something he reinforced during his introductory press conference.
For example: the prospect of negative interest rates has been floated during the current crisis, but Macklem said he was comfortable with the effective 0.25 per cent floor that the Bank of Canada has settled on.
“There are some disruptive effects of going negative,” Macklem told reporters. “It’s hard to explain to depositors why their deposits are shrinking in their account when they’re not taking any money out. And when you’ve already got a disrupted financial system, you might want to be hesitant about introducing a new source of disruption.”
-with files from Kevin Carmichael
3 Canadian Dividend Stocks that Haven’t Missed a Payout for 100+ Years
Local dividend investors are lucky. They have a good selection of Canada’s finest companies to choose from – stocks that haven’t missed a dividend payment in decades. In fact, a small number of companies have paid uninterrupted dividends for a century or longer.
That’s a pretty impressive track record.
There’s just one problem. Instead of sticking with these excellent long-term dividend kings, investors get a little cute. They load up on lesser stocks, enticed by a succulent yield, deep value opportunity, or better growth potential. Sometimes these investments work out, but often they don’t.
There’s nothing wrong with that approach. After all, diversification is a good thing. But I still think the bedrock of the average Canadian investment portfolio should consist of these dividend kings, the kinds of companies you can count on no matter what.
This is doubly important in a COVID-19 world.
Let’s take a closer look at three of Canada’s top dividend kings, shares that have paid investors consistently for at least the past 100 years.
Bank of Montreal
We might as well start at the top. Bank of Montreal (TSX:BMO)(NYSE:BMO) has the longest dividend streak in Canada. It started paying a dividend back in 1829 and hasn’t missed a payment since. That’s a remarkable record.
BMO is hardly the largest bank in Canada. It’s only the fourth-largest. But it’s still a formidable company with a market cap exceeding $45 billion. The company has retail, commercial, and capital markets operations across both Canada and the United States. It’s also a big wealth manager on both sides of the border and is a major player in the exchange-traded fund market. In fact, BMO was the first major Canadian bank to expand into the United States.
Today is an excellent opportunity to pick up BMO shares on the cheap. Despite rallying significantly earlier in the week, this dividend king trades at just 8 times trailing earnings and slightly below book value. That’s the cheapest shares have been since 2009. BMO also pays a succulent 6% dividend yield, which is about 50% higher than normal.
Imperial Oil (TSX:IMO)(NYSEMKT:IMO) has been a stalwart in the Canadian energy sector for more than a century with history dating back to John D. Rockefeller and Standard Oil. The company has paid consistent dividends for virtually its entire history, since the 1880s.
This dividend king has been undoubtedly hurt by the recent collapse in oil prices, but it easily has the balance sheet strength to survive. Its oil sands operations are among the best in the business, producing some 400,000 barrels of bitumen each day. Long-term reserves are also excellent, exceeding 6 billion barrels. And investors have to like the company’s downstream operations, which include several refineries and an fleet of Esso gas stations. It also provides fuel for Mobil branded stations in Canada.
Imperial Oil hasn’t just paid consistent dividends lately. It has increased its payout for 25 consecutive years. That’s an excellent record. Combine that with the current 3.9% yield and it’s an interesting opportunity.
BCE Inc. (TSX:BCE)(NYSE:BCE) was founded in 1880, just a few years after Alexander Graham Bell invented the telephone. It paid its first dividend to investors the next year and hasn’t looked back since. That’s a dividend streak of nearly 140 consecutive years for this dividend king.
BCE today looks stronger than ever. The company is the leading telecom provider in Canada, connecting more than 13 million customers to wireless data, cable television, internet, and home phone services. It has customers from coast to coast, too. It also owns a smattering of interesting media assets including top television stations, a collection of radio stations, video streaming service Crave, and pieces of several top sports franchises.
This dividend king also offers an excellent payout today. The current yield is 5.9%, a payout that is supported by earnings. BCE is a mature company today, meaning it can easily afford to pay out most of its cash flow back to investors.
The bottom line on these dividend kings
Don’t try and reinvent the wheel. The smart move is to load up on dividend kings like Bank of Montreal, Imperial Oil, and BCE for your income needs. It’s worked for the last century, and it sure looks good for the next century too.
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Edited By Harry Miller
The close: TSX ends lower, crude has best month on record – The Globe and Mail
Canada’s main stock index ended a strong May a little weaker while crude oil prices enjoyed their best ever month, surging 88 per cent.
The S&P/TSX composite index closed down 69.90 points at 15,192.83. Sectors were mixed, with financials leading decliners with a 2% drop, as investors absorbed a week of earnings reports that featured massive loan loss provisions. Laurentian Bank lost 9.1% after cutting its dividend – the first such move by a major lender in almost three decades.
U.S. stocks finished mostly higher after President Donald Trump announced measures against China in response to new security legislation that were less threatening to the U.S. economy than investors had feared.
The Dow ended the session slightly lower, but all three indexes registered gains for the month and the week.
The S&P 500 initially extended losses after Trump said he was directing his administration to begin the process of eliminating special treatment for Hong Kong in response to China’s plans to impose new security legislation in the semi-autonomous territory.
But Trump made no mention of any action that could undermine the Phase One trade deal that Washington and Beijing struck early this year, a concern that had cast a cloud over the market throughout the week.
“He began speaking in a very tough tone,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance in Charlotte, North Carolina. “The market was worried he was going to announce something substantial, something detrimental to the U.S. economy. Then, as he spoke, it became clear the actions being taken were not going to be as dramatic as originally feared.”
Trump also said the United States is terminating its relationship with the World Health Organization, something he had threatened to do earlier this month.
S&P 500 technology shares gave the index its biggest boost, while financials were the biggest drag.
The latest confrontation between the U.S. and China has fueled concern that worsening tensions between the two world’s largest economies could derail the recent sharp gains in the stock market.
Expectations of a quick economic recovery from the coronavirus pandemic have driven the S&P 500 up more than 30% from its March lows.
The Dow Jones Industrial Average fell 17.53 points, or 0.07%, to 25,383.11, the S&P 500 gained 14.58 points, or 0.48%, to 3,044.31, and the Nasdaq Composite added 120.88 points, or 1.29%, to 9,489.87.
For the month, the Dow added 3.9%, the S&P 500 gained 4.5%, and the Nasdaq rose 6.8%. For the week, the Dow and S&P 500 each rose more than 3%, and the Nasdaq gained 1.8%.
New York Governor Andrew Cuomo said Friday that New York City is “on track” to enter phase one of reopening on June 8, and he said five upstate regions will now transition to phase two.
Federal Reserve Chair Jerome Powell, speaking in a webcast organized by Princeton University Friday, reiterated the U.S. central bank’s promise to use its tools to shore up the economy amid the coronavirus pandemic.
Twitter was down 2% and Facebook Inc shares slipped 0.2%, a day after Trump signed an order threatening social media firms with new regulations over free speech.
Upscale department store chain Nordstrom Inc slumped 11% after it reported a near 40% fall in quarterly sales due to pandemic-led store closures.
Salesforce.com Inc slipped 3.5% as the cloud-based business software maker cut its annual revenue and profit forecasts.
The July crude contract was up US$1.78 at US$35.49 per barrel and the July natural gas contract was up 2.2 cents at nearly US$1.85 per mmBTU. Futures closed out May with record monthly gains, on hopes that the U.S.-China trade deal would remain intact and on falling crude production.
The August gold contract was up US$23.40 at US$1,751.70 an ounce and the July copper contract was up 1.2 cents at nearly US$2.43 a pound.
Read more: Stocks seeing action Friday – and why
Reuters, The Canadian Press, Globe staff
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Laurentian Bank cuts dividend by 40%
Laurentian Bank slashed its dividend by 40 per cent on Friday, the first such move by a major Canadian lender in almost three decades.
The Montreal-based lender said Friday its profit fell by 79 per cent to $8.9 million, and its provisions for credit losses — the amount of money the bank is setting aside to cover loans that may go bad — soared to $54.9 million. That’s up from $9 million in the same period a year ago.
COVID-19 is throwing uncertainty to the bank’s outlook, so it cut its dividend to 40 cents a share as a precaution. Previously it was 67 cents a share.
“We have a strong capital and liquidity position, and disciplined risk management, but it is a time for prudence,” CEO François Desjardins said. “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.”
The last time a major Canadian bank slashed its dividend was 1992, when National Bank cut the payout to its shareholders.
Published By Magen Johnson
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