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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.
Growth and value stocks won’t be able to continue their rise at the same pace, CIBC Capital Markets says
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.
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.
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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Oil companies planning to ship crude on the expanded Trans Mountain pipeline in Canada are concerned that the project may not begin full service on May 1 but they would be nevertheless obligated to pay tolls from that date.
In a letter to the Canada Energy Regulator (CER), Suncor Energy and other shippers including BP and Marathon Petroleum have expressed doubts that Trans Mountain will start full service on May 1, as previously communicated, Reuters reports.
Trans Mountain Corporation, the government-owned entity that completed the pipeline construction, told Reuters in an email that line fill on the expanded pipeline would be completed in early May.
After a series of delays, cost overruns, and legal challenges, the expanded Trans Mountain oil pipeline will open for business on May 1, the company said early this month.
“The Commencement Date for commercial operation of the expanded system will be May 1, 2024. Trans Mountain anticipates providing service for all contracted volumes in the month of May,” Trans Mountain Corporation said in early April.
The expanded pipeline will triple the capacity of the original pipeline to 890,000 barrels per day (bpd) from 300,000 bpd to carry crude from Alberta’s oil sands to British Columbia on the Pacific Coast.
The Federal Government of Canada bought the Trans Mountain Pipeline Expansion (TMX) from Kinder Morgan back in 2018, together with related pipeline and terminal assets. That cost the federal government $3.3 billion (C$4.5 billion) at the time. Since then, the costs for the expansion of the pipeline have quadrupled to nearly $23 billion (C$30.9 billion).
The expansion project has faced continuous delays over the years. In one of the latest roadblocks in December, the Canadian regulator denied a variance request from the project developer to move a small section of the pipeline due to challenging drilling conditions.
The company asked the regulator to reconsider its decision, and received on January 12 a conditional approval, avoiding what could have been another two-year delay to start-up.
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Tesla has announced its profits fell sharply in the first three months of the year to $1.13bn (£910m), compared with $2.51bn in 2023.
It caps a difficult period for the electric vehicle (EV) maker, which – faced with falling sales – has announced thousands of job cuts.
Boss Elon Musk remains bullish about its prospects, telling investors the launch of new models would be brought forward.
Its share price has risen but analysts say it continues to face significant challenges, including from lower-cost rivals.
The company has suffered from falling demand and competition from cheaper Chinese imports which has led its stock price to collapse by 43% over 2024.
Figures for the first quarter of 2024 revealed revenues of $21.3bn, down on analysts’ predictions of just over $22bn.
But the decision by Tesla to bring forward the launch of new models from the second half of 2025 boosted its shares by nearly 12.5% in after-hours trading.
It did not reveal pricing details for the new vehicles.
However Mr Musk made clear he also grander ambitions, touting Tesla’s AI credentials and plans for self-driving vehicles – even going as far as to say considering it to be just a car company was the “wrong framework.”
“If somebody doesn’t believe Tesla is going to solve autonomy I think they should not be an investor,” he said.
Such sentiments have been questioned by analysts though, with Deutsche Bank saying driverless cars face “technological, regulatory and operational challenges.”
Some investors have called for the company to instead focus on releasing a lower price, mass-market EV.
However, Tesla has already been on a charm offensive, trying to win over new customers by dropping its prices in a series of markets in the face of falling sales.
It also said its situation was not unique.
“Global EV sales continue to be under pressure as many carmakers prioritize hybrids over EVs,” it said.
Despite plans to bring forward new models originally planned for next year the firm is cutting its workforce.
Tesla said it would lose 3,332 jobs in California and 2,688 positions in Texas, starting mid-June.
The cuts in Texas represent 12% of Tesla’s total workforce of almost 23,000 in the area where its gigafactory and headquarters are located.
However, Mr Musk sought to downplay the move.
“Tesla has now created over 30,000 manufacturing jobs in California!” he said in a post on his social media platform X, formerly Twitter, on Tuesday.
Another 285 jobs will be lost in New York.
Tesla’s total workforce stood at more than 140,000 late last year, up from around 100,000 at the end of 2021, according to the company’s filings with US regulators.
The car firm is also facing other issues, with a struggle over Mr Musk’s compensation still raging on.
On Wednesday, Tesla asked shareholders to vote for a proposal to accept Mr Musk’s compensation package – once valued at $56bn – which had been rejected by a Delaware judge.
The judge found Tesla’s directors had breached their fiduciary duty to the firm by awarding Mr Musk the pay-out.
Due to the fall in Tesla’s stock value, the compensation package is now estimated to be around $10bn less – but still greater than the GDP of many countries.
In addition, Tesla wants its shareholders to agree to the firm being moved from Delaware to Texas – which Mr Musk called for after the judge rejected his payday.
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Tech stocks rose on Wednesday, outstripping the broader market as investors welcomed Tesla’s (TSLA) cheaper car pledge and waited for the next rush of corporate earnings.
The Nasdaq Composite (^IXIC) rose roughly 0.6%, coming off a sharp closing gain. The S&P 500 (^GSPC) was up 0.2%, continuing a rebound from its longest losing streak of 2024, while the Dow Jones Industrial Average (^DJI) fell 0.1%.
Tesla shares jumped nearly 12% after the EV maker’s vow to speed up the launch of more affordable models eclipsed its quarterly earnings and revenue miss. That cheered up investors worried about growth amid a strategy shift to robotaxis and the planned cancellation of a cheaper model.
The results from the first “Magnificent Seven” to report have intensified the already high hopes for Big Tech earnings, that the megacaps can revive the rally in stocks they powered. The spotlight is now on Meta’s (META) report due after the market close, as the Facebook owner’s shares rose after the Senate voted for a potential ban on rival TikTok. Microsoft (MSFT) and Alphabet (GOOG) next up on Thursday.
Meanwhile, Boeing (BA) reported better than expected first quarter results before the opening bell with a loss per share of $1.13, narrower than the $1.72 estimated by Wall Street. Shares rose about 2% in morning trade.
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