Looking for investing ideas? Here’s your weekly digest of the Globe’s latest insights and analysis from the pros, stock tips, portfolio strategies plus what investors need to know for the week ahead.
Rob Carrick: Three mistakes investors are going to be tempted to make in the months ahead
People don’t talk much about the stress of investing in a raging bull market, but it’s there, Rob Carrick writes. There’s an intolerance for anything that lags the great returns of the major stock indexes and particular market-leading stocks. In this kind of environment, it’s easy to fall victim to investing mistakes with long-term repercussions.
One mistake is selling bonds and bond exchange traded funds. With bond yields rising, the price of bonds and exchange-traded funds and mutual funds holding bonds have fallen rather sharply. The reason to hold bonds in a sensible blend with stocks is to cushion the impact when the stock markets next take a fall. Read more here, including the two other mistakes: succumbing to late-stage fear of missing out and getting carried away with new toys such as bitcoin ETFs.
More from Rob Carrick: Soaring stocks add to retirees’ worry about the ‘tax bomb’ hit on their investments when they die
Here’s what my value investing students picked as the top stock pick of 2021
As with every year, students in my MBA class at the Ivey Business School had to find a potential value stock, value it and make a recommendation to buy or wait, professor George Athanassakos writes. With the market having more than recovered from its losses since last March, the picking has not been easy. Despite that, the top pick in this most recent class was Enerflex.
The Calgary-based supplier of products and services to the oil and gas industry had a price-to-earnings ratio of 6.9 times, a price-to-book of 0.4 and market capitalization of about $600-million (as at Feb. 2). One of the main reasons the students like the company is a focus on recurring revenues. Enerflex’s products and after-market services are a source of recurring revenue that offer higher margins relative to manufacturing and serve as a source of stable, predictable financial performance. Read more here, including their three other reasons.
Despite facing a big new obstacle, investors should be taking a longer look at Fortis
Fortis has navigated through the pandemic almost unscathed, raising its quarterly dividend in September and delivering a slight increase in annual adjusted profits in 2020, David Berman writes. But now the St. John’s-based regulated utility is facing a new obstacle in early 2021: rising bond yields. Fortis shares have slipped more than 5 per cent over the past four weeks and are now trading at levels seen nearly two years ago.
But there’s a compelling argument for staying put or even buying shares during the slump: Utilities are already down, trailing the TSX by about nine percentage points so far this year and making dividend yields pop next to what are – even after the recent gains – paltry bond yields. Read more here.
Heinzl’s mailbag: What return of capital means for REITs, unwavering enthusiasm for Fortis, and more
A reader asks John Heinzl: Many real estate investment trusts distribute significant amounts of return of capital. It has never made sense to me to include getting my own money back when calculating my yield. Do posted yields need to be adjusted by deducting the ROC to get a more realistic idea of what one is receiving?
He responds: Return of capital doesn’t necessarily mean you are “getting your own money back.” In general, ROC is defined as the portion of a distribution that does not consist of dividends, interest, realized capital gains or other income.
With REITs, ROC typically arises when its distributions exceed its taxable income. This isn’t necessarily a problem, however, because income is affected by accounting items, such as depreciation, that don’t reduce cash available for distributions. In other words, when you receive ROC, you are getting cash generated by the business, not some sleight-of-hand trick by the REIT. For investors, ROC has one big advantage: It is not taxed immediately. Read more here, including answers to other reader questions on Fortis and more.
More from John Heinzl: Yield Hog model dividend growth portfolio as of Feb. 28, 2021
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Canada’s market may be shielded as rising bond yields threaten stocks
Global stock markets are growing increasingly unsettled by a side effect of the global economic revival – rising interest rates and bond yields, Tim Shufelt writes. The sudden spike in long-term yields over the past month has sent a jolt of volatility into equities, which have come to depend on limitless stimulus in several forms, including depressed yields.
For the time being, turbulence resulting from the move in yields will likely be concentrated in growth and momentum stocks, and the markets that have them in abundance. Canada is not one of those markets. A heavy tilt toward resources, financials and stocks that pay generous dividends gives the Toronto Stock Exchange a bit of a cushion in the current environment, said Stephen Duench, vice-president and portfolio manager at AGF Investments Inc. . “Relative to bond yields, Canada is quite attractive.” Read more here.
current canadian industry dividend yields
Per cent
TSX
Canada 10-year bond
Banks
Base metals
Consumer goods
Fertilizers/other
Financial services
Health care
Industrials
Information technology
Insurance
Integrated oil
Oil and gas expl./prod.
Precious metals
REITs
Telco/pipes/util./food
0
1
2
3
4
5%
JOHN SOPINSKI/THE GLOBE AND MAIL, SOURCE: agfiq
current canadian industry dividend yields
Per cent
TSX
Canada 10-year bond
Banks
Base metals
Consumer goods
Fertilizers/other
Financial services
Health care
Industrials
Information technology
Insurance
Integrated oil
Oil and gas expl./prod.
Precious metals
REITs
Telco/pipes/util./food
0
1
2
3
4
5%
JOHN SOPINSKI/THE GLOBE AND MAIL, SOURCE: agfiq
current canadian industry dividend yields
Per cent
TSX
Canada 10-year bond
Banks
Base metals
Consumer goods
Fertilizers/other
Financial services
Health care
Industrials
Information technology
Insurance
Integrated oil
Oil and gas expl./prod.
Precious metals
REITs
Telco/pipes/util./food
0
1
2
3
4
5
6%
JOHN SOPINSKI/THE GLOBE AND MAIL, SOURCE: agfiq
More from Tim Shufelt: As a post-pandemic boom builds, foreign investors are showing renewed interest in Canadian stocks
What investors need to know for the week ahead
In the week ahead, the Bank of Canada will make its latest interest rate policy announcement on Wednesday, which is widely expected to hold steady at 0.25 per cent. Economic data on tap include Canada’s February job numbers on Friday, as well as: U.S. wholesale trade for January (Monday); U.S. inflation figures for February (Wednesday); Canada’s wholesale trade and motor vehicle sales for January (Friday).
Companies releasing their latest financial results include SNC-Lavalin Group, Great Canadian Gaming, Empire Co., Ballard Power Systems, Dorel Industries, Premium Brands Holdings and Intertape Polymer Group.
Read more: Investors weigh how far tech stocks can slide after volatile week
Looking for more investing ideas and opinions?
- A stock yielding 8.7% with operations in the red hot real estate market
- What the latest edition of the long-term investor’s bible on portfolio returns is predicting for stocks and bonds
- Expected returns for all the stocks on the S&P/TSX composite index
- Top undervalued U.S. stock picks for a rising rate environment: Morgan Stanley
- Insider Report: CEOs bought these two high-yielding utility stocks around oversold levels
- Rob Carrick: Delving into some finer points on how dividends are taxed
- Why the No. 1 bond fund manager of 2020 thinks the recent spike in Treasury yields is just another head fake
- The highest yielding stocks on the TSX, plus risk data