Omicron, the new variant of great concern dominated the headlines this week. There are reasonable fears that omicron could become the dominant strain within a few months. That said, we do not know enough about the dangers of this new and prolific variant. In this post, I’ll offer the latest reports on omicron. And we’ll look at the investment story of the week for Canadian investors. The big Canadian banks announced dividend increases of 11% to 25%. It’s omicron vs big Canadian bank dividends.
First off, relax. We currently do not know much about omicron. While The Atlantic post is from a week ago, not many of the blanks were filled in this week. Not many of the big and important questions were answered.
That said, there is early evidence that omicron is more transmissible (compared to Delta). Given that, omicron may become the dominant strain globally within a few months.
On Yahoo Finance! it was reported …
From just over 200 new confirmed cases per day in recent weeks, South Africa saw the number of new daily cases rocket to more than 3,200 on Saturday, most in Gauteng, the country’s most populous province.
Now, up to 90% of the new cases in Gauteng are caused by it, according to Tulio de Oliveira, director of the KwaZulu-Natal Research Innovation and Sequencing Platform.
Early indications suggest that omicron could muscle out Delta to become the dominant virus at large. Previously, it took Alpha and Delta four to five months to become the dominant strain.
Will our vaccines work?
A very important question is – will our vaccines work against omicron? From the Globe and Mail and quoting Peter Juni, an epidemiologist at St. Michael’s Hospital in Toronto.
While Omicron is certainly spreading, serious cases in South Africa appear to be showing up mostly among the unvaccinated. Based on an update from South African colleagues Friday, Dr. Juni said unvaccinated individuals may account for more than 85 per cent of hospital cases there.
“That’s really important,” he said. “These are preliminary data, but what we see is that there is still a high extent of protection against hospital admissions for fully vaccinated people.”
We can draw two ‘conclusions’ here, at least on a small sample. One, the vaccinations appear to offer a good level of protection. Two, if you want to decrease the risk of severe sickness or death, vaccination is a sensible option. Or, you can take the risk of getting the spike proteins the old fashioned way – by natural infection.
Yes, you will ‘get it’
But make no mistake, as epidemiologists and infectious disease experts tell us, you will get the spike proteins many times in your life. As is the case with investing, you can determine the risk level, in this case for how your body might perform after you are exposed. The pandemic will not go away as we’re discovering. The hope is that it eventually moves from pandemic to endemic and becomes a common cold or more (mild) flu-like.
And even if you are vaccinated, you may still be exposed to omicron. There were reports of at least 50 people in Oslo, Norway, infected with the variant a super-spreader event. It was a company Christmas party restricted to vaccinated employees.
Our miracle worker vaccine producers can create an omicron-focused vaccine in about 100 days, if need be.
The big question is the severity of severe illness that might be caused by omicron for those who are not vaccinated and for those who are vaccinated. We will not have the answer to that biggie for many weeks. When we get those details, you might then have permission to freak out. Or …
This could be good news …
If omicron is more transmissible and less dangerous, we speed up the pace for getting to the other side of the pandemic. Of course, the level of ‘dangerousness’ will determine the strain on hospitals and levels of sickness. If omicron is more transmissible and delivers the same level of severe sickness as Delta, hospitalizations and deaths will increase.
As always we might counter that negative effect with even greater levels of vaccinations and booster shots. I am due. I had my second dose in early February as I’m a designated caregiver for my Mom who is in a retirement home. Mom is a COVID survivor.
Let’s hope that omicron IS more transmissible and far less severe.
I covered omicron and the big bank dividend increases in my latest for MoneySense.
It’s the econOMI, stupid!
As I suggested in that post, the markets are shooting first and asking questions later. It might be time for a portfolio and investor pulse check.
I also moved into another dimension with a look at the metaverse. It is fascinating.
…an immersive 3D next-generation version of the internet, rendered by virtual or augmented reality technology. In its simplest terms, the metaverse is a digital space where many of us will socialize, work and play.”
Of course, there are (already) ETFs for that. You’ll find those ETF mentions in that post.
And courtesy of the smart folks at Charles Schwab, we look at what might be in store for 2022.
A look at the Canadian bank dividend increases
After a long wait, investors were finally treated to those dividend increases courtesy of the big banks.
Here’s a summary thanks to a Million Dollar Journey Tweet. That Tweet includes the insurers as well who were first out with dividend hikes.
And here’s what the markets thought of the quarterly reports.
Scotiabank, BMO, TD and RBC received more of the thumbs up from the market makers.
I own TD, RBC and Scotiabank. I think I’ll stick, I’ll hold.
Vanguard VDY
My wife has more than generous exposure to the big banks by way of Vanguard’s Canadian High Dividend – VDY. That ETF should be delivering some very generous dividend increases in the next few payments as well.
Here’s VDY vs XEI, the battle of the big dividends.
You should ignore the dividends?
In the Globe & Mail David Berman offered …
However, the strategy of buying the highest-yielding bank stocks didn’t reward investors with outsized gains over the past three years. CIBC’s share price gained 30 per cent over this period, below the peer average of 38.5 per cent. Scotiabank gained just 17 per cent over the same period, trailing all of its peers.
And what drives share price growth …
If bigger dividend yields haven’t translated into stronger share price gains, what has driven shares? If National Bank and BMO are any indication, profit and revenue growth – which are now underpinning stronger dividend growth – are the key factors driving share price performance.
BMO has led the way with three-year annual profit growth of 42.3 per cent. National Bank is a close second with profit growth of 39.7 per cent.
And yes we did see the greater dividend growth from the banks that have recently delivered greater profits and revenue growth.
Who’s beating the TSX?
For 2021, based on their high yield, CIBC and Scotiabank made it into the Beat The TSX Portfolio.
I did a quick check on performance and the two BTSX banks are certainly underperforming the banking index. CIBC and Scotiabank lag the Canadian banking index in 2021 by about 4%, but they are beating the TSX by about 6% in 2021. Mission accomplished on that beat the market thing. I will soon update that Beat The TSX post.
As you may remember I had suggested that you take a look at the Canadian banks when they were the cheapest they had been in 20 years. The outperformance has been considerable. If one had over-weighted, they might consider rebalancing with any outrageous gains. That said, it’s hard to trim those stocks when promised dividend increases are yet to be paid. Many will likely stick around in full, to get paid in full.
A home for those dividends
I am looking to invest those dividends in my Canadian energy stocks. I added to the Ninepoint energy fund this week. I’m still with Eric Nuttall on the longer term oil bull thesis.
Here’s the link to Eric’s latest on BNN Market Call.
The TSX is adding more energy names to the index.
I still have my eye on the green commodities supercycle.
And the world runs on chips. I will find a place for the Horizons Global semiconductor ETF. Semiconductors (chips) are the modern commodity.
The Amplify EV and battery ETF is more than coming to life. I am happy to add there as well.
These thematic ideas accent the core portfolio
The markets had a rocky week. There may be more of that in store in the next few weeks and months. Who knows? As a semi-retiree I need a portfolio that is well-balanced. My core includes many defensive names and assets. Bonds have been doing their thing as markets take a wee tumble.
The telco’s are holding up well. In the U.S., our JNJ, CVS, Walgreens, Abbott Labs, 3M, Pepsi, Walmart, Colgate-Palmolive and Carrier grabbed investor attention as many ran to safety.
And yes, I do have that generous portfolio income thanks to the banks, telco’s and pipelines as the Canadian core.
Be ready for anything if you need to protect. It feels like there are a lot of swirling forces at the end of 2021, the first full year of the pandemic.
Have a read of the Permanent Portfolio that is geared to protect against all economic shifts.
And on that all-weather portfolio theme – the new balanced portfolio.
Have a great Saturday, we’ll see you tomorrow. Or we can chat on Twitter.
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Cool. Nice roundup.
Same hope here for Omicron.
Gotta luv CDN banks. Own top 5.
BTSX sure seems to do its thing. Own 9 of 10, but do own GWO for POW that I don’t have.
Oil, ya. I was a week too early taking on a lot more positions. Longer term I am comfortable there remains a very good case for much upside. We’ll see.
Volatility and protection. Good points!
Thanks Deane, let’s hope for the best from omicron. It might become dominant. And our future is in the hands of those spike proteins.
Great week for bank investors.
Dale
“ BMO has led the way with three-year annual profit growth of 42.3 per cent.”
You may want to check those numbers. I believe the Globe and Mail is incorrect here.
I think the ‘three year’ profit growth on BMO may be 42.3%, but it certainly isn’t an ‘annual’ growth. (BMO profit fell in 2020 from 2019)
I’ll bet you find the same with National Bank.
I’m not saying the banks aren’t great investments, they are. I own all of the ‘big 5’.
Thanks Rick, I’ll look into that.
Dale