Dividend investing in Canada, the thrill is gone. Plus the Sunday Reads.

Canadians love their dividends. A few decades of outperformance will do that to ya. Big dividend investing in Canada provided superior results thanks to real growth in a few sectors, namely financials and telcos and pipelines. But the thrill is gone say many. Telco has hit a wall and the big banks might be strained to squeeze more out of a tapped out Canadian consumer. Throw in the fact that Canada has been in a per capita recession for quite some time. Our housing crisis provides another risk overhang. We’re looking at dividend investing and more on the Sunday Reads.

Here’s a very good post from Ian McGugan in the Globe & Mail (paywall). And here’s the most telling chart …

The big Canadian dividends are not used to losing. For decades they have outperformed. You’ll find that evidence in the Beat The TSX Portfolio.

And keep in mind that the actual dividend payments have little to nothing to do with the outperformance. The big dividends find profitability, wider moats, and can go value hunting as is the case with the Beat The TSX Portfolio. As I’ve stated my entire financial writing career, dividends are a divining rod that can help you find certain kinds of companies. And you should confirm what you think the dividends are ‘telling you’.

Why has dividend investing lost its mojo? Conventional wisdom blames it on the big rise in interest rates since 2022. Higher yields from bonds and guaranteed investment certificates have made the payouts from dividend stocks less appealing – or so the story goes.

Norm Rothery

That competition for investor dollars will play in (along with increased debt payments), but Norm offers it is more about the sector declines.

A more disturbing hypothesis is that we’re witnessing a long-run sectoral decline. Big dividend payers in Canada now tend to cluster in a few industries – notably banking and telecom. Both are mature sectors. It could be that these dividend-spewing businesses are simply running out of natural growth opportunities.

Yup, it’s the earnings decline

Right on cue another post in the Globe & Mail looked at the earnings per share of U.S. stocks vs Canadian stocks.

Over the past 20 years, the earnings power of companies in the S&P/TSX Composite Index has declined by nearly 30 per cent against their U.S. competitors, according to data compiled by Canaccord Genuity.

And here’s the chart …

While Canada has many profitable sectors, there’s is simply not a lot of growth. It is growth creates greater portfolios, it is growth that protects us in retirement. Of course in retirement we manage the risk level, as well.

The Canadian recession

And here’s a Tweet on our Canadian recession. Immigration alone is not a viable economic growth strategy. Add in that our current federal government is not business friendly to put it kindly.

Benjamin Tal of CIBC, in the Globe & Mail, on Canada –

"We are in a recession. We are in a per capita recession. In fact, if you look at per capita GDP growth, it’s negative and it’s approaching rates that we saw in the 1991 recession and in the 2008 recession.

We need to…

— CutTheCrapInvesting (@67Dodge) May 17, 2024

In that Tweet thread you see the chart listing growth and immigration levels.

All said, Canadian stocks are rockin’

As I wrote in March, Canadian stocks are not so bad. We’re now at all-time highs.

And our friend from down east offers the good news. Why not celebrate the good times for investors? I say go for it …

Friday May 17 at the close
CDN TSX and USA S&P 500 Indexes

So much green – Been pretty amazing time to be investor of late – Everything from stocks / commodities / crypto been flying pic.twitter.com/M0vMuKbAs8

— Burnsco (@garquake) May 17, 2024

That’s why we invest, to make money. To go for the ride when the markets are working in our favour. It’s the easy time, easy street. But …

The waiting is the hardest part for investors.

From that 2023 post on this blog …

Investors are starting to notice that their portfolios have been treading water for a couple of years. Over the last two years, a global balanced growth portfolio would essentially be flat. Of course, move out to 3 year, 5 year and 10 year time horizons and we have very solid to generous returns. At times investors have to wait. We build and springload the portfolio waiting for the next aggressive move higher.

Cut The Crap Investing

Of course, we should not avoid Canadian stocks, but we should keep our allocation to a sensible level. A few weeks ago we were checking in on your asset allocation.

Experts appear to agree that a 30% to 40% allocation to Canadian stocks is reasonable or optimal for a Canadian investor.

Canadian GARP stocks

Brian Belski at BMO offer his GARP stocks for Canada – growth at a reasonable price. These stocks have valuations below the market average and are expected to hit record earnings levels in the next few years.  I’ve snipped the list …

Canadian utilities

At MoneySense, Kyle offered a very good Making Sense of the Markets post.

Kyle included a peek at utilities in Canada. Steady as she goes …

Last week I offered that Pipeline stocks and utilities are moving.

The Canadian utilities have not enjoyed the same AI-inspired run as the American utilities. That makes sense, Canada does not have the AI supercharging ecosystem. The U.S. appears set to win the day and years on the artificial intelligence front. That said, Canadian Utilities (ZUT.TO) are on a nice run over the last month.

Will AI power your portfolio?

Re-Tweetable

And I really like this Tweet from financial planner William Barreca.

The proper financial advisor can be incredibly valuable by saving you money, time & providing peace of mind

But like any profession, not all advisors are created equal.

Let me walk you through some of the biggest red flags to look out for in an advisor🚩:

— William Barreca, CFP® (@willbarreca) May 17, 2024

More Sunday Reads

Dividend Hawk is keeping an eye on the earnings and stock stories of the week. That includes some weaker numbers from Home Depot and Cisco Systems.

Next, we’ll head on over to Banker on Wheels. You’ll find a deep dive on the 60/40 balanced portfolio vs a more diversified offering.

At My Own Advisor, Mark takes a look at the ‘sell in May and go away’ investing theory. In last week’s post I yelled…

Sell in May, no way.

Market timing is near impossible of course. And as Mark demonstrates it is a losing strategy over time.

At Findependence Hub, Steve Lawrie looks at the difference between a lifestyle reserve and an emergency fund.

Beware the Canadian dividend trap

At Tawcan Bob interviews a Canadian investor that focuses on the dividend, and make that Canadian dividends. First off, if we go that route we would take a pass on the incredible performance for U.S. stocks.

Here’s the U.S. market (IVV) vs Canadian stocks (XIU) over the last decade, the time period for that Canadian investor. The returns do not include dividends, nor the currency boost that a Canadian would have experienced.

Obviously, Nelson could have semi-retired much earlier thanks to U.S. exposure and perhaps ANY total return focus. Canadians should strongly consider – what is the cost of your Canadian home bias? It could cost you many ‘extra working years’.

If you see a PADI post (Predicted Annual Dividend Income), run the other way.

Remember, more money creates more retirement income. We should separate the accumulation and retirement stages.

More money is more better.

Dale

In retirement it might also greatly curtail your income level created by the portfolios. Staking most of your retirement on one currency (Canadian) might be one of the greatest risks. The U.S. Dollar is the global reserve currency.

Getting groceries at Stocktrades

And you can go grocery shopping at stocktrades.ca. That is, if you’re looking to put some grocers in your stock portfolio cart.

Readers of Cut The Crap Investing will know that that grocers hit the spot in the Canadian Wide Moat Portfolio. And retail stocks in Canada are terrific total return performers. You can fill in that portfolio hole with one ETF. Check out iShares Consumer Staples (XST.TO).

Here’s the Canadian Consumer Staples destroying the market (XIU) over the last decade or so.

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OUR CASHBACK CREDIT CARD

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