Business

Worried about frothy markets? It's time to hide in Canada's 'Dividend Dynasties' stocks – Financial Post

Published

3 years ago

August 19, 2021

Harry Miller

Growth and value stocks won’t be able to continue their rise at the same pace, CIBC Capital Markets says

Author of the article:

Colin McClelland

investors should pivot into dividend-paying stocks from growth or value equities, CIBC Capital Markets says in a new report. Photo by Brent Lewin/Bloomberg files

With rocketing stock market gains forecast to wane in the second half of the year, investors should pivot into dividend-paying stocks from growth or value equities, CIBC Capital Markets says in a new report.

“Dividends are likely to take on increased importance as equity returns moderate,” CIBC analysts said a report this week. “With the current low interest rate environment, we expect dividends to become increasingly relevant for investors.”

The research team led by Ian de Verteuil recommends choosing Canadian stocks over their U.S. counterparts because the average spread on yields between the two country’s equities has widened to 120 basis points (bps) from an average of 40 bps over the past 30 years.

Plus, four of the more stable industries — financials, communications, utilities and pipelines — on the Toronto Stock Exchange’s S&P/TSX composite index have boosted their share of the $75 billion a year paid in dividends to investors to 71 per cent compared with 54 per cent in the early 1990s, the researchers say.

Growth and value stocks — shares that might have collapsed during the pandemic, but have soared this year with strong earnings as lockdowns eased and economies rebounded — won’t be able to continue their rise at the same pace.

As if to prove the CIBC point, this week the S&P/TSX fell to its lowest level since last month, in part hampered by rising COVID-19’s Delta variant cases and word that the U.S. Federal Reserve was mulling decreased support for the economy this year as rising employment neared a target.

On Thursday, all the main indices in Canada, United States and Europe were receding, while Asian equities dropped to their lowest level this year. Global central bankers are set to meet this month at their annual retreat in Jackson Hole, Wyoming, which could give an indication of where monetary policy is heading.

Of importance to stocks is how the U.S. Fed will reduce or taper the US$120 billion in Treasury bonds and mortgage-backed securities it buys each month to inject cash into the economy.

U.S. Federal Reserve chairman Jerome Powell. Photo by Al Drago/Pool/AFP via Getty Images files

Investors will also have to contend with when central banks will eventually raise interest rates from record lows at some point. Rates are often increased as a means to control inflation. The Bank of Canada’s inflation target is between 1 and 3 per cent while the country’s annual inflation rate rose to 3.7 per cent last month, the highest in a decade, while it stood at 3.5 per cent in June in the United States. However, current rising prices in most economies are largely seen as transitory while supply chain kinks are ironed out after pandemic lockdowns.

Nonetheless, some market watchers are awaiting a pullback in stock prices, and CIBC is warning investors to prepare for a change in strategy.

“Price returns have been the name of the game in recent years,” CIBC said. “Given the unusually strong returns over the past handful of years, investors may be lulled into ignoring the importance of dividends.”

Research showed S&P/TSX dividends appear to be “more resilient than in the past.” About a third of S&P/TSX members have consistently increased dividends over the past five years, compared with 20 per cent in the early 2000s.

Tim Hortons’ parent Restaurant Brands International Inc. is one of Canada’s ‘Dividend Dynasties’ stocks. Photo by Ben Nelms/Bloomberg files

The bank included a list of what it called Canadian “Dividend Dynasties” — companies that have increased their dividends more than 10 times over the past decade. Ranked by their dividend’s compound annual growth rate, the top five are Restaurant Brands International Inc. (parent company of Tim Hortons), property company Brookfield Asset Management Inc., software firm Enghouse Systems Ltd., pipeline company Enbridge Inc., and packager CCL Industries Inc.

CIBC issued special praise for sixth place Canadian Natural Resources Ltd. for invariably raising its dividend despite being a crude producer enduring an oil price slump that made it the worst-performing company on the list of 33.

“We find it particularly impressive that CNQ has been able to consistently grow its dividend over this period,” the bank research team wrote.

CNQ’s resilience is even more impressive as energy and materials sectors accounted for about 80 per cent, or $21 billion, of the $27 billion in total dividend cuts over the past 15 years, the bank said.

Most of the resource companies, which compose a large proportion of the S&P/TSX market capitalization, “are price takers, and are dependent on volatile commodity prices,” CIBC said. “As such, this makes regular, consistent dividends more difficult to support.”

Rounding out the top 10 on the list are car parts maker Magna International Inc., gold miner Franco-Nevada Corp., Canadian National Railway Ltd. and grocer Metro Inc.

Financial Post

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Business

Roots sees room for expansion in activewear, reports $5.2M Q2 loss and sales drop

Published

1 day ago

September 13, 2024

Anne Joseph

TORONTO – Roots Corp. may have built its brand on all things comfy and cosy, but its CEO says activewear is now “really becoming a core part” of the brand.

The category, which at Roots spans leggings, tracksuits, sports bras and bike shorts, has seen such sustained double-digit growth that Meghan Roach plans to make it a key part of the business’ future.

“It’s an area … you will see us continue to expand upon,” she told analysts on a Friday call.

The Toronto-based retailer’s push into activewear has taken shape over many years and included several turns as the official designer and supplier of Team Canada’s Olympic uniform.

But consumers have had plenty of choice when it comes to workout gear and other apparel suited to their sporting needs. On top of the slew of athletic brands like Nike and Adidas, shoppers have also gravitated toward Lululemon Athletica Inc., Alo and Vuori, ramping up competition in the activewear category.

Roach feels Roots’ toehold in the category stems from the fit, feel and following its merchandise has cultivated.

“Our product really resonates with (shoppers) because you can wear it through multiple different use cases and occasions,” she said.

“We’ve been seeing customers come back again and again for some of these core products in our activewear collection.”

Her remarks came the same day as Roots revealed it lost $5.2 million in its latest quarter compared with a loss of $5.3 million in the same quarter last year.

The company said the second-quarter loss amounted to 13 cents per diluted share for the quarter ended Aug. 3, the same as a year earlier.

In presenting the results, Roach reminded analysts that the first half of the year is usually “seasonally small,” representing just 30 per cent of the company’s annual sales.

Sales for the second quarter totalled $47.7 million, down from $49.4 million in the same quarter last year.

The move lower came as direct-to-consumer sales amounted to $36.4 million, down from $37.1 million a year earlier, as comparable sales edged down 0.2 per cent.

The numbers reflect the fact that Roots continued to grapple with inventory challenges in the company’s Cooper fleece line that first cropped up in its previous quarter.

Roots recently began to use artificial intelligence to assist with daily inventory replenishments and said more tools helping with allocation will go live in the next quarter.

Beyond that time period, the company intends to keep exploring AI and renovate more of its stores.

It will also re-evaluate its design ranks.

Roots announced Friday that chief product officer Karuna Scheinfeld has stepped down.

Rather than fill the role, the company plans to hire senior level design talent with international experience in the outdoor and activewear sectors who will take on tasks previously done by the chief product officer.

This report by The Canadian Press was first published Sept. 13, 2024.

Companies in this story: (TSX:ROOT)

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Business

Talks on today over HandyDART strike affecting vulnerable people in Metro Vancouver

Published

2 days ago

September 12, 2024

Anne Joseph

VANCOUVER – Mediated talks between the union representing HandyDART workers in Metro Vancouver and its employer, Transdev, are set to resume today as a strike that has stopped most services drags into a second week.

No timeline has been set for the length of the negotiations, but Joe McCann, president of the Amalgamated Transit Union Local 1724, says they are willing to stay there as long as it takes, even if talks drag on all night.

About 600 employees of the door-to-door transit service for people unable to navigate the conventional transit system have been on strike since last Tuesday, pausing service for all but essential medical trips.

Hundreds of drivers rallied outside TransLink’s head office earlier this week, calling for the transportation provider to intervene in the dispute with Transdev, which was contracted to oversee HandyDART service.

Transdev said earlier this week that it will provide a reply to the union’s latest proposal on Thursday.

A statement from the company said it “strongly believes” that their employees deserve fair wages, and that a fair contract “must balance the needs of their employees, clients and taxpayers.”

This report by The Canadian Press was first published Sept. 12, 2024.

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Business

Transat AT reports $39.9M Q3 loss compared with $57.3M profit a year earlier

Published

2 days ago

September 12, 2024

Anne Joseph

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.

Companies in this story: (TSX:TRZ)

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