JMRD Market Observer for August 11th, 2017 – National Bank Dividend All-Stars: H2 UpdateAugust 11, 2017
In This Week’s JMRD Market Observer
- JMRD STRATEGY COMMENTS
- JMRD TEAM MEMBERS IN THE COMMUNITY
- NATIONAL BANK DIVIDEND ALL-STARS – 2H REVIEW
- JMRD BASKET CORNER
- RETIREMENT CORNER
- READS OF THE WEEK
- ECONOMIC CALENDAR
- EARNINGS REPORTS
JMRD Strategy Comments
To the surprise of many, equity markets have been relatively quiet this summer. Unlike in past years where events such as Brexit, spiking bond yields, fears of a slowing Chinese economy, European recession and a focus on Central Banks monetary changes have tended to add more volatility to the summer months, this year has seen a largely range bound market. The U.S. Indexes have been very resilient with double-digit percentage gains so it should not be too surprising to see some consolidation. Instead of correcting through price, markets have so far corrected by time.
As we move through Q2 earnings season, the Canadian market performance has been disappointing after a strong year in 2016. Three sectors dominate the TSX index and led by negative performances from energy and materials, the Financial sector has struggled to pull the TSX to a marginal gain after the first 7 months of the year. In addition, we have seen a stronger Canadian dollar with U.S. Dollar weakness vs all major global currencies. Our expectation is for another 25 basis points increase by the Bank of Canada in October, before taking a pause to assess the Canadian economy.
The economic backdrop remains supportive for above-potential economic growth in the 2nd half of 2017. Economic numbers in Europe remain positive in addition to Emerging Markets and Canada. In the U.S., economic surprises are becoming “less negative”. Most of the momentum indicators (Purchasing Managers Index – an indicator of the economic health of the manufacturing sector) reported around the world last week remain in growth territory.
In the U.S., the all-important employment report showed robust job creation in July (+209k payroll jobs) with a sizeable increase in employment for prime-aged workers (people aged 25-54). Labour force participation rate is at a new multi-year high. Profit margins continue to expand and fewer stocks in the market means investors pay a higher premium for quality companies.
We would not be surprised to see a pickup in volatility as a result of seasonal weakness into the Fall. However, sentiment remains on edge which means it would be tough to see a significant, sustained drop in the market when everyone is nervous and ready for a correction. We also know that timing a correction is difficult to anticipate.
We remain focused on following your investment plan and encourage any questions or comments.
JMRD Team Members in the Community
As many of you know, summer is often a time for various important charity and community events.
The JMRD Team was busy this week with two important events on the same day.
One was the Alexandra Hospital (in Ingersoll) annual charity golf day that we have supported for a number of years. We had a quality team of JMRD members from the London and Waterloo office.
That evening, down the road in Tillsonburg, we supported the “Hockey Night in Tillsonburg” event organized by a client and with proceeds going to a great project in memory of one of our long time clients and friends.
The main speaker was Ron MacLean from Hockey Night in Canada and the team members attending checked out the Stanley Cup.
So many great causes supported by our clients and friends and we are happy to be a part of them.
National Bank Dividend All-Stars: H2 Update
National Bank analysts collectively cover over 300 TSX-listed equities, of which more than half offer investors income in the form of dividends or distributions. To help navigate this universe we assembled a portfolio that contains 29 of NBF’s favourite yield ideas, the group spanning a variety of industries, sizes and liquidity, but sharing three investment criteria:
- Dividend/distribution yield of approximately 4% or greater;
- Extremely low risk of the current payout proving unsustainable / dividends ideally growing; and
- Positive analyst bias regarding the prospects for share/unit price.
- NBF’s Dividend All-Stars portfolio updated Jan. 31, 2017 has returned income of 2.9% and realized an average price return of 2.8% for its first six months of 2017, this 5.7% total return above the S&P/TSX composite’s -0.1% for the same period (1.5% income + -1.6% price for the index). 19 of the 27 equities from the January 2017 basket outpaced the benchmark on a total return basis.
- Nine All-Stars increased dividends since the last publication: Brookfield Infrastructure Partners, Crius Energy Trust (held in All Cap Basket), Enercare (held in All Cap Basket), First National Corporation, Innergex Renewable Energy (held in All Cap Basket), Keyera Corp. (held in DIG Basket), Killam Apartment REIT, MCAN Mortgage Corporation and Pattern Energy Group. Since introduced in 2012 there have been 79 dividend/distribution increases amongst the companies that have been named NBF Dividend All-Stars versus five cuts, the latter primarily resource companies reacting to the sharp commodity price downturn in 2015.
- There are five additions and three subtractions to the basket this update: CanWel Building Materials, CIBC, High Arctic, Pembina Pipeline (will be held in DIG Basket once its takeover of Veresen is completed) and Rocky Mountain Dealerships each added.
- The average yield of an All-Star is elevated at 6.0%, but payout is easily funded for each, with most equities having the capacity to grow dividends/distributions over time.
- For investors seeking stable, predictable, elevated income and exposure to high quality companies, the following portfolio reflects NBF’s favourite ideas for the remainder of 2017.
JMRD Basket Corner
As was the case last week, it was another busy earnings week in the DIG and All Cap Baskets. Once again, for those companies on NBF’s coverage list, the analyst report is attached.
- Northland Power (NPI) – See the full article
- WSP Global Inc. (WSP) – See the full article
- Keyera Corp (KEY) – See the full article
SNC Lavalin (SNC) – SNC Targets Canadian Projects as Trudeau’s Plan Gets Jump on Trump’s
All Cap Basket
- Kinaxis (KXS) – See the full article
- Enercare (ECI) – See the full article
- New Flyer Industries (NFI) – See the full article
- Savaria Corp. (SIS) – See the full article
- CCL Industries (CCL’B)
U.S. Growth Basket
Lockheed Martin (LMT) – Lockheed fielding more missile defense queries amid North Korea tests
Reads of the Week
Monday August 14th – None
Tuesday August 15th – Import price index (US), NAHB housing market (US)
Wednesday August 16th – International securities transactions, MBA mortgage applications (US)
Thursday August 17th – Manufacturing sales, Initial jobless claims (US)
Friday August 18th – Consumer price index (CAN)
Monday August 14th – Badger Daylighting Ltd., Canopy Growth Corporation
Tuesday August 15th – Arizona Mining Inc., Metro Inc., Home Depot Inc. (The)
Wednesday August 16th – L Brands Inc.
Thursday August 17th – Alibaba Group Holding Limited, Wal-Mart Stores Inc., Applied Materials Inc.
Friday August 18th – None
Enjoy the weekend!
Categorised in: JMRD Updates