**November 20th Issue of The JMRD Market Observer**
In This Week’s JMRD Market Observer
- Dividend Yield vs Dividend Growth
- NBF Geopolitical Briefing – China’s New Five-Year Plan: An Ambitious Multi-Pronged Push to Support a Slowing Economy
- JMRD Basket Corner
- 2015 Tax Season Reminders
- Retirement Corner
- Week at a Glance
- Reads of the week
- Economic Calendar
- Earnings Reports
Dividend Yield vs Dividend Growth
As we repeatedly mention in our weekly Market Observer, we live in a world of extremely low interest rates, but at some point they will start to move higher. During times such as these, investors sometimes find themselves looking to invest in the highest dividend-yielding stocks to complement their lower-yielding, conservative investments. This can sometimes prove detrimental. The stocks with the highest dividend yields are oftentimes companies whose fortunes are deteriorating (when a stock price falls, dividend yields move higher – you get the same fixed dividend but for a lower price). These are companies that may ultimately end up cutting their dividend. We prefer looking at companies with a track record of high dividend growth, which are usually the stocks with a lower dividend yield. Below we have provided some examples of stocks within our various Baskets with higher 5 year dividend growth rates.
NBF Geopolitical Briefing – China’s New Five-Year Plan: An Ambitious Multi-Pronged Push to Support a Slowing Economy
NBF’s Geopolitical team released an update on China’s new fiv-year plan and what it means for investors.
While the full details of China’s 13th five-year plan (2016-2020) will not be officially released until March 2016, more than enough information has been revealed to allow us to assess certain of China’s main economic and political objectives and challenges going forward. These include:
- an acceptance that China is entering a period of more moderate economic growth as it shifts to a more service-oriented economy;
- the end of the country’s long-held policy of limiting most families to one child;
- efforts to gradually eliminate restrictions which deprives millions of migrant workers from having access to many social services in the cities where they work;
- a pledge to increase pension and healthcare coverage which is essential for encouraging consumers to save less and spend more;
- increased efforts to integrate global financial markets by, among other things, having the yuan play a much greater role in the global economy; and
- a significant push toward greater economic integration with other Asian countries.
Investors analyzing China’s growth prospects should pay particular close attention to the progress being made on these objectives.
(Full report attached)
JMRD Basket Corner
Hydro One (H) – National Bank initiated coverage this week on Hydro One with an ‘outperform’, following the company’s recent Initial Public Offering. Based on a group-low cash flow risk profile (>99% cost-of-service) and “A” credit ratings, NBF analyst Patrick Kenny assigned a group-high 2016e EV/Free-EBITDA valuation multiple of 18.5x (group: 14.7x). Meanwhile, with Ontario promoting the consolidation of local distribution companies via tax-based incentives, we add $1.50/sh of risked M&A upside (~5%) to our base $24.50/sh valuation. Overall, we initiate coverage with a $26 target and based on a 12-month total return opportunity of 23%, combined with a group-low cash flow risk profile. The shares traded near $22.80 on Friday with a 3.68% dividend yield (full report attached) Hydro One
WSP Global (WSP) – NBF hosted an institutional lunch in Montreal where Greg Kelly, President and CEO of WSP for the United States, South America and the Caribbean (Americas) was the guest speaker. NBF’s analyst Leon Aghazaarian came away more positive on WSP’s growth prospects for this segment as the company continues to add notable projects to its backlog (full report attached) WSP
U.S. Growth Basket
Facebook (FB) – Inside Mark Zuckerberg’s Bold Plan For The Future Of Facebook
Home Depot (HD) – Home Depot delivered strong results this week, against a difficult retail backdrop with adjusted EPS of $1.36, $0.04 better than expected and up 18.0% y/y, driven by stronger comps (US at 7.3% vs. Street 6.0%) and gross margin +34 bps (vs. expectations for flat). On the week, Home Depot moved higher by 7% and a new year-high.
JetBlue (JBLU) – JetBlue’s Airport Farm Adds a Touch of Green to Kennedy
Nike (NKE) – Nike announced on Thursday a 14% quarterly dividend increae to $0.32 per share, a two-for-one stock split and that they will buyback up to $12B over 4-years. On Friday, the shares traded higher by nearly 5%. Recently, Nike’s CEO Mark Parker was names Fortune’s “Businessman of the year”: Nike’s Master Craftsman
2015 Tax Season Reminders
As we recently turned the page on another month and are now getting closer to the end of 2015, we thought it would be a good idea to get everybody thinking about TAXES again. You will find below some key dates and figures to have in the back of your mind when preparing for the upcoming tax season. Like last year, we will also feature a special “Tax Edition” email in the New Year which will include tax slip information as well as other helpful tax tips.
- Last day for Tax Loss selling of Canadian Equities – Thursday, December 24th, 2015 (Canadian Markets are closed December 28th in lieu of Boxing Day)
- Last day for Tax Loss selling of U.S. Equities – Monday, December 28th,2015
- 2015 RSP contribution deadline – Monday, February 29, 2016. The 2015 maximum RRSP contribution limit is 18% of “earned income” in 2014, to an annual maximum $24,930. The 2016 contribution limit is a maximum of $25,370.
- 2015 TFSA contribution deadline – Thursday December 31, 2015 – contribution limit $10,000.00
- Note, if you are planning a TFSA withdrawal in early 2016, consider withdrawing the funds by December 31, 2015. The advantage is that you will not have to wait until 2017 to re-contribute that amount.
- The last date to make an RESP contribution is Thursday December 31, 2015.
- As a reminder, in order to benefit from the entire government grant, the contribution per child per year is $2,500. If by chance, there are unused grants from the past, $5,000 can be contributed and still receive the full 20% grant. If your child turns, or already turned 17 in 2015, this will be your last year to receive the government grant, which makes the December 31st deadline all the more important for you.
- “Super seniors face danger of outliving their savings” (Globe and Mail)
Week At a Glance
See Week At a Glance Report.
Reads of the Week
- “Why So Many Hate This Recovery” (Bloomberg)
- “Why the $10,000 TFSA limit will help the middle class” (Financial Post)
- “Buffett’s Grandson Seeks Own Investment Route: Social Change” (New York Times)
Monday November 23rd – U.S. Existing Home Sales, Markit U.S. Manufacturing PMI
Tuesday November 24th – U.S. GDP Annualized
Wednesday November 25th – U.S. Personal Income, U.S. Durable Goods Orders, U.S. Initial Jobless Claims, U.S. New Home Sales
Thursday November 26th – None
Friday November 27th – Canadian Industrial Product Price Index, Canadian Raw Materials Price Index, U.S. Markets closed for Thanksgiving day
Monday November 23rd – None
Tuesday November 24th – Alimentation Couche-Tard, George Weston Ltd.
Wednesday November 25th – Deere & Co
Thursday November 26th – None
Friday November 27th – None
Have a good weekend!