Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO chief investment strategist Brian Belski argued that the strong cash flow generation for TSX companies will favour dividend growth stocks , and he provided investment options with the potential to increase payouts,
“S&P/TSX cash generation has been strong, while balance sheets remain in great shape, according to our models. As such, we believe the capital deployment cycle, which started in mid-2021 will likely continue to be a key theme in the back half of 2022 and well into 2023. Ultimately, our work shows this type of environment will favour dividend-based strategies - particularly companies that have strong enough cash generation and balance sheets to support growth within the operating portions of their business while also growing dividends and buying back shares … capital spending has only recently risen above the rate of depreciation, leaving plenty of room for the capital deployment cycle to continue, in our opinion.”
The stocks in the accompanying dividend growth potential screen are Boardwalk REIT, Birchcliff Energy, Canadian Apartment Properties REIT, CCL Industries, Canadian Natural Resources, Crescent Point Energy, Constellation Software, Cenovus Energy, Dream Office REIT, Dollarama, Dundee Precious Metals, EQB Inc., Gildan Activewear, H&R REIT, Interfor Corp., Interrent REIT, Methanex, Nutrien, Paramount Resources, Parex Resources, SSR Mining, Tricon Residential, Teck Resources Ltd., Whitecap Resources, West Fraser Timber Co., and Sleep Country Canada Holdings.
" BMO dividend growth screen” – (table) Twitter
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Scotiabank Meny Grauman previewed earnings reports for the domestic banks,
“The good news is that there are signs that a more balanced consensus is forming. Gone is the view that the end of pandemic-related lockdowns would usher in an economic boom to rival the Roaring-20s. War in Ukraine, runaway inflation across the globe, and China’s insistence on maintaining its zero-COVID policy have dashed those hopes and replaced it with a darker vision of the future. But investors appear to be stepping back from the brink and realizing that while rising rates will weigh on economic growth by design, the outcome is not necessarily a deep and prolonged recession. That discovery process has taken the bank group multiple (based on 2023 consensus EPS) from a high of 11.7x just this past February to a low of 8.9x in July and up to its current 10.0x. At current valuation levels the market appears to be pricing in a mild recession with only limited impact on credit performance, which is in fact our base case scenario … Heading into the quarter we spotlight what we view as a particularly favorable set up for both NA and TD. With respect to NA which we rate Sector Outperform, performance should be helped by a relatively more resilient trading business than peers. The bank should also benefit from the fact that Quebec’s housing market is more resilient to a slowdown than other key regions in the country. We continue to be cautious on TD longer-term, and the Cowen deal only adds to execution risk for the name, but heading into Q3 reporting we see the bank’s outsized rate sensitivity as an advantage, as well as its relatively lower exposure to capital markets.”
“Scotia analyst preview of domestic bank earnings” – (research excerpt) Twitter
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The monthly release of the Teranet-National Bank housing index uncovered more weakness,
“Declining transactions in the resale market and rising interest rates continue to weigh on property prices, with the Teranet-National Bank Composite House Price Index falling 0.2 per cent from June to July … Using the unsmoothed seasonally adjusted index, which is more sensitive to market fluctuations, the decline is even more pronounced, with property prices falling 1.4 per cent from June to July. Moreover, price decreases continue to be widespread across the country… While the Bank of Canada has indicate that it will continue to raise its policy rate and that transactions in the real estate market should continue to decline, we anticipate that the composite index should decrease by 10 per cent by the end of 2023″
Teranet- National Bank House Price Index (full report) – National Bank Economics
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Diversion: “Janet Jackson’s Banger ‘Rhythm Nation’ Could Crash People’s Laptops” – Gizmodo
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Scott Barlow