Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO senior economist Robert Kavcic made some strong hints that dividend stocks will be a better investment than actual real estate,
“Some investors (ahem) have long been pointing to the value in Canadian dividend stocks, especially relative to an asset class like real estate, which had captivated hearts and minds (emphasis on had…the hard reality is hitting). The advantages are many: Higher yield, better tax treatment, stronger payout growth, little payment risk if selected properly, minimal transaction cost and instant/partial liquidity. The lack of leverage is probably the biggest drawback, but that’s still an extensive list of benefits (and leverage can work both ways). Note that the TSX is now pushing record highs, led in part by a gang of dividend-paying sectors that had previously been depressed by the tightening cycle. This is clearly one area where quick BoC easing is helping. Meantime, investor-heavy segments of the real estate market (i.e., small Toronto condos) are swamped with supply and still seeing prices fall”
“BMO: Dividend investors having their day” – (excerpt, chart) X
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RBC Capital Markets analyst Pammi Bir predicts a moderating of REIT profit growth and thinks investors need to be selective,
“As Q3 reporting kicks off this week, our top picks are intact. After a strong Q2, our forecasts reflect earnings growth moderating to up 1 per cent year-over-year, with seniors housing well ahead of the pack. Though bond yields remain volatile, recent cap rate data points to a plateauing trendline which should support underlying asset values and NAVs. As noted in our recent Q4 2024 REIT Quarterly, compression in long bond yields is a likely prerequisite for the next move up in sector valuations. That said, we believe attractive risk-adjusted returns remain on the table for our preferred picks in seniors housing, multi-family, industrial, retail, and self-storage … The sector’s trading at 14 per cent below NAV, a still-decent cushion for error in our view. At a 6.2-per-cent AFFO [adjusted funds from operations] yield (16 times N12M AFFO), the 301 bps spread to the 10Y GoC and 63 bps spread to Moody’s BAA are below long-term levels (361 bps and 97 bps, respectively), yet remain within fair value goalposts”
Mr. Bir has “outperform” ratings on Boardwalk REIT, BSR REIT, CAPREIT, Flagship Communities REIT, InterRent REIT, Killam Apartment REIT, Minto Apartment REIT, Morguard Residential REIT, Chartwell Retirement Residences, Dream Industrial REIT, Granite REIT, First Capital REIT, RioCan REIT, Smartcentres REIT, and StorageVault Canada Inc.
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Yesterday, I presented CIBC’s view that a 75 basis point rate cut Wednesday wouldn’t be surprising. As a counterpoint, BofA Securities is bullish on the loonie because they thinks the Bank of Canada will only cut 25,
“Under the current macro backdrop, picking the right USD pair to fade is important as there are still some remaining bullish USD signals in place. For example, positioning analysis continues to show USD uptrend continuation signals vs SEK and several EM currencies. For this week, we like to hold a bearish USDCAD view given our out-of-consensus call for a 25bp BoC rate cut decision. Fundamentally we continue to estimate short-term USDCAD fair value to be on a 1.36-handle and would expect USDCAD bulls to get squeezed in the scenario of a 25bp rate cut. Risk to our view would be a 50bp BoC rate cut decision with dovish guidance”
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Diversion: “How refrigeration ruined fresh food” – M.I.T. Technology Review (soft paywall)