Fall is upon us

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(This was originally published in the September 2017 version of The Dividend Growth Newsletter. It is available here.)

It’s always an interesting exercise to see how human psychology can dominate the stock market. Fall is upon us, and believers of the “October Effect” must also sense that in the markets, too. The crashes of 1907, 1929 and 1987 all occurred during that wretched month, and last October the S&P 500 declined 1.94%.

To make things worse, Donald “Dotard” Trump and Kim “Rocket Man” Jong-un continue to have their war of words, with no resolution in sight. The hope is that both administrations will limit their aggression to playground insults and not launching nuclear warheads. The lack of a response by markets to this constant friction is both surprising, in the sense that markets can be sensitive to political developments, and also unsurprising, in the sense that markets are so quick to react and analyze situations that most don’t expect a nuclear war to occur. But, uncertainty continues to be an enemy of the markets, and constant vigilance required.

A new addition to the American Dividend Aristocrat Portfolio is Carnival Corp. (NYSE:CCL), which operates the Carnival Cruise, Holland America and Princess Cruise Lines. The stock currently has a dividend yield of 2.48% and prior to the string of hurricanes, posted a record profits in their most recent quarter.

NAFTA, SCHMAFTA

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(This was originally published in the August 2017 version of The Dividend Growth Newsletter. It is available here.)

NAFTA talks aren’t going anywhere. North Korea continues to be a thorn in everyone’s side. Hurricane Harvey is the worst natural disaster on American soil since Katrina. The Bank of Canada is seriously contemplating an interest rate hike. Stock market valuations remain high. Housing prices continue to climb. We’re nearly three-quarters through the year, but we’re still no closer to figuring out the head scratchers of 2017. The TSX is down more than 1 percent this past month, and the S&P 500 a little less than that.

It could be a lot worse… but that’s not the proper mindset for investing. Investors don’t want to just lose less money than the next guy, they want to see their portfolios grow. Losing money doesn’t feel good, even when you lose less than the market. And when the markets fall, selling positions to generate cash isn’t a sustainable strategy.

Investing isn’t always about total return. Achieving financial objectives can be planned using specific income goals, and that’s where dividend aristocrats come in with their fixed payments and attractive yields. The key is to hold steady through rough waters, and that’s what these portfolios are designed to do – no new portfolio positions have been initiated this past month.

If only it were hockey

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(This was originally published in the June 2017 version of The Dividend Growth Newsletter. It is available here.)

Here’s a fun stat: The S&P TSX had the fourth-worst performance in the first half of 2017, returning just 0.69% (see left), finishing only ahead of Israel, China, and Russia. South Korea leads the pack with an 18.03% return, and only two countries (the U.S. and Spain) outside of the Middle East and Asia finished returned more than 10%. According to BNN, Canada ranked 91st among the 103 indices that are tracked, thanks to huge declines in the energy sector with low oil prices.

That hasn’t stopped prognosticators from predicting a huge rebound in the second half, citing more appetizing equity valuations. A rising loonie will help certain sectors, including grocery chains (such as Metro, Inc., which is featured in the Canadian Dividend Aristocrat Portfolio), and a Reuters poll showed that many believe the TSX will reach new highs by mid-2018… but we all know how wrong polls can be.

In times of poor overall returns and further geopolitical risk with North Korea’s constant missile experiments, dividends are once again attractive investments for their steady dividends and high yields.

A quiet summer…?

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(This was originally published in the May 2017 version of The Dividend Growth Newsletter. It is available here.)

Despite reports earlier in the year that Canada’s economic growth would outpace the U.S., the TSX has returned just 0.41% year-to-date. After an outstanding year in 2016, Canadian markets have remained relatively stagnant while the U.S. markets have rocketed; Donald Trump’s first 100 days in office had the fifth-highest percentage gain in the S&P 500 in history. Stats Canada says the country’s real GDP growth was 3.7% in Q1, but the Canadian dollar could go even lower with lower oil prices, Stats Canada’s numbers are often subject to revision and not always reliable, and the federal government has yet to inject the economy with any infrastructure spending.

The rest of the summer is expected to be quiet at best. At worst, there are many signals pointing towards a correction or a market downturn. Reports on overvalued stocks, low bond yields and an imminent bursting of the Canadian housing bubble have been ubiquitous, and the global political climate remains sensitive. Whether or not those calls come to fruition this year remains to be seen, but Canadians were sitting on big cash piles in 2016, which indicates investors have been cautious for quite some time.

The flip side, however, is that staying invested tends to pay off in the long run. Stocks in the Dividend Aristocrat portfolios are meant to be held long-term, even through market downturns. To better adapt to a constantly changing environment, 10 new names have been added to the three model portfolios, which are outlined in the newsletter.

Investing, caution

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(This was originally published in the April 2017 version of The Dividend Growth Newsletter. It is available here.)

Despite a record-breaking 24 executive orders – the most since World War II – in Donald Trump’s first 100 days in office, it seems very little has changed. Twitter continues to showcase the best and worst of Trump, the U.S. is still very much part of NAFTA, tax reform has yet to come, and a single brick has to be laid for the wall. Interest rates remain low, the housing crisis in Vancouver and Toronto have hit a fever pitch, and the Canadian dollar continues to be weak along with weak oil prices.

Combined with the French presidential election, which has eerily mirrored the most recent U.S. election so far with a right-wing populist going up against a center-left opponent who’s leading the polls, and North Korea, where Kim Jong-un’s fascination with flexing his military muscle can no longer be considered as just a sideshow, it’s understandable why some investors remain cautious, especially with a stock market that continues to try and push to new highs.

However, earnings for 1Q 2017 have looked mostly positive so far, and that may be the single biggest driving factor of the rise in the Dow and S&P 500. Dividend aristocrats such as Metro and McDonald’s have all reported impressive earnings, and continue to provide value through capital gains and consistently growing dividends. They have proven to provide downside protection relative to other equities, which makes them ideal in uncertain times.

Tiresome Trump

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(This was originally published in the March 2017 version of The Dividend Growth Newsletter. It is available here.)

Donald Trump has been called many things since assuming office. Most are critical of his methods and choices, and his waning popularity is a symptom of that. But here’s another word: tiresome.

Trump has been in office less than four months, and yet Barack Obama’s presidency feels like it’s in the distant past. The 24/7 news cycle is ruthless; Trump is polarizing, if anything, and no other president has ever felt so pervasive. I mean, has the failure of any TV show ever been singularly attributed to the President of the United States?

Trump’s lack of political experience is hampering his ability to deliver on his promises, especially when it comes to big tax cuts. The S&P 500 jumped eight points the day Trump was sworn in, and over the next two months climbed to almost 2,400 points, an all-time high. The Dow saw a similar spike, reaching an all-time high in early March. Optimism has waned, however, and over the past month, both indices have pulled back, declining roughly 1 per cent and 1.5 per cent, respectively. The status quo has changed from a corporate-friendly administration to one that may be impeached.

In this type of environment, stable dividend stocks seem all the more logical and worthwhile. Stock prices can be difficult to stomach, but these are companies that have weathered all kinds of presidents, and continue to deliver predictable dividend increases and yields.

What difference does it make who the next President of the United States is?

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(This was originally published in the July 2016 version of The Dividend Growth Newsletter. It is available here.)

Let me re-phrase: What if you knew how the stock market would behave over the next four to eight years – does that alter your plans?

The Dow Jones rose 85.74% during Bill Clinton’s first term and a further 70.01% during his second term. But, the Dow fell 7.65% during George W. Bush’s first term, and then another 15.2% during his second term.

If you planned on converting your portfolio to income from growth, or if you planned to make a large withdrawal to fund a purchase, Donald Trump could dramatically affect your lifestyle.

The analysis is much more than just Democrat vs. Republican, but the booming Eisenhower and Reagan (staunch right-wing Republicans) years indicate the stock market responds to spending, not ideology – the stock market loved road building and defense spending.

The real question should be: If Bill’s administration built the information highway, what will Hillary’s administration build? Or, perversely, if terrorists were afraid enough of Bush to bomb the World Trade Center, how afraid are they of Trump?