For a company to continue raising its payment, it must also have growing revenue, earnings and cash flow to support dividend increases. Otherwise, its payout ratio will rise and eventually the dividend will stop growing – or, worse, get cut or eliminated.123render/Getty Images/iStockphoto
Regulators do not allow finance professionals to guarantee results and U.S. portfolio manager Ben Carlson plays with this idea by offering 10 Things Investors Can Expect in 2018 for his blog, A Wealth of Common Sense.
Mr. Carlson first admits that "I have no idea what's going to happen — in world events, politics, or the market — in 2018 (and neither does anyone else)" so his list emphasizes the importance of portfolio management and behavioural safeguards.
The 'Ten things' are; 2017 performance will determine the degree of optimism for 2018; things will happen in the market that make no sense; it will be easy to think that a minor market correction will be followed by a much bigger sell-off; other people will get better performance than you (and you'll be envious); asset allocation will be more important than stock picks; the best investing will be to increase savings; there will be 'geeky' finance debates that most investors shouldn't care about; there will be investments you wished you owned more of; luck and skill will be impossible to separate; and 'diversification will make you feel silly.'
The list is lighthearted but useful for investors' mental preparation. It is better to know now, for instance, that we will be tempted to panic and sell everything if the S&P/TSX Composite falls 10 per cent. Imagining that situation makes it more likely to handle a potential correction calmly, and look to find bargain investments rather than sell at the bottom.
The list is also a reminder that while the market environment is always evolving the rules of investing rarely, if ever, change. Increased savings, not following bullish or bearish extremes in sentiment, diversification and humility will always be the path to stronger long term results.
-- Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
TECSYS Inc. (TCS-T). This stock appeared on the positive breakouts list last week. The share price has an impressive track record, rising by 30 per cent or more in five of the past six calendar years. The share price soared 75 per cent in calendar 2017, jumped 30 per cent in 2016, declined 8 per cent in 2015, increased 42 per cent in 2014, rallied 61 per cent in 2013, and advanced 57 per cent in 2012. In addition, management has been steadily increasing the dividend, announcing an 11-per-cent dividend hike in November. The stock has six "buy" recommendations. Montreal-based TECSYS provide supply chain management software to customers aimed at providing solutions in areas such as warehouse management, distribution management, and transportation management. Jennifer Dowty reports.
People Corp. (PEO-X). Investors looking to play Canada's robust and rapidly changing job market might consider People Corp., a Winnipeg-based company providing group benefit, recruitment and other human resources services with ambitious growth plans. Shares of TSX Venture Exchange-listed People Corp. have risen by about 64 per cent over the past year amid strong revenue growth driven by acquisitions and new business from existing clients. The run-up well surpasses industry peers such as Morneau Shepell Inc., whose shares have advanced about 17 per cent, and Caldwell Partners, whose stock has fallen 9 per cent, over the same 12-month period. Brenda Bouw reports.
Sun Life Financial Inc. (SLF-T). This stock is on the positive breakouts list. The stock price is off to a strong start in 2018, rising nearly 4 per cent driven higher by U.S. corporate tax cuts and prospects of higher interest rates. Toronto-based Sun Life Financial is an international financial services company that provides insurance, investment products and services through its global operations. As at Sept. 30, the company's assets under management stood at $934-billion. The company is expected to report its fourth-quarter financial results after the market closes on Feb. 14. Last quarter, the company reported better-than-expected third-quarter financial results. Underlying earnings per share (EPS) came in at $1.05, ahead of the consensus estimate of $1.01. Jennifer Dowty reports.
The Rundown
The case for conservative stocks, even as they get clobbered
Safe is no longer sound when investing in stocks. For years, taking a conservative approach to investing in the stock market was the winning approach. You can see this through the success of low-volatility exchange-traded funds and some of the individual sectors these funds focused on, notably consumer staples. It happens that consumer staples was one of the worst-performing TSX sectors in the past month. With investors taking a decidedly more speculative approach in recent days, steady blue chips are less in demand. Utility and telecom stocks, also defensive sectors, have struggled as well lately. Rob Carrick reports.
Surging bond yields threaten BCE, Telus, Rogers stock
There's a lingering threat to Canadian telecom stocks, and it's not coming from foreign competition, new regulations or concerns about iPhone addiction. Instead, the threat comes from rising bond yields. But there may be an opportunity here to buy telecom stocks when they are unpopular. The shares of BCE Inc., Telus Corp. and Rogers Communications Inc., collectively known as the Big Three, have fallen recently and are trailing the S&P/TSX composite index. As bond yields rise, bonds start to look more attractive relative to stocks that are prized for their steady dividends. In other words, in a world where many investors are desperate for yield, dividend stocks don't look quite so special any more. David Berman reports.
Tempted to get in on the pot stock hysteria? Here's your best option
Recreational use of marijuana will be legal across Canada in July, and Ottawa and the provinces are gearing up to handle what is expected to become a multi-billon dollar business. But will it? And who will benefit after the various levels of government take their cut of the profits? One reader wrote to ask whether the legalization of marijuana represents "the chance of a lifetime" for investors. Gordon Pape gives a run down on three of the leading Canadian companies in this industry and has a suggestion on the best play on the sector.
Why rising interest rates aren't a death knell for dividend stocks
It's one of those investing axioms few people question: If interest rates rise, dividend stocks will tumble. With bond yields climbing and the Bank of Canada potentially hiking interest rates next week, now is a good time to consider the consequences of higher rates. But as we'll see, the relationship between interest rates and dividend stocks isn't as simple as you might think. John Heinzl reports.
Tired of flashy? Try the Two-Minute Portfolio
In a time of soaring cryptocurrencies and marijuana stocks, it hardly seems noteworthy that the Two-Minute Portfolio beat the S&P/TSX composite index last year. The 2MP made 9.7 per cent on a total-return basis (share-price changes plus dividends), while the index gained 9.1 per cent. A narrow win for the 2MP. Nothing to get excited about, which is kind of the whole point of this strategy. The 2MP was conceived back in 1999 as a continuing experiment in low-effort stock picking. At the beginning of the year, you buy the two largest dividend-paying stocks as measured by market capitalization (shares outstanding multiplied by share price) in each of the 11 subindexes on the S&P/TSX composite. Typically, there isn't much changeover in the sector leaders from year to year. So while there's a bit of portfolio rebalancing to be done in early January every year, the process is relatively painless from the perspective of time and money spent on stock-trading commissions. Rob Carrick reports.
This obscure TSX index is doubling the composite's returns
It is not unusual for a listed company to announce a plan to buy back some of its outstanding shares during the next fiscal year. There are regulations surrounding the price that can be paid and the number of shares to be purchased, but the news release often results in a surge in the stock price as investors assume that the corporate buying program will put a floor under the stock. With that as background, Canadian equity investors will be interested to learn that one of the best-performing indexes on the Toronto Stock Exchange in 2017 was the obscure S&P/TSX composite buyback index, with a total return for the year of 19 per cent compared with 9.1 per cent for the overall composite index. Robert Tattersall explains.
Top Links
Profit 'explosion' expected for these 13 stocks
Others
Tuesday's Insider Report: Companies insiders are buying and selling
Monday's Insider Report: Companies insiders are buying and selling
The Globe's stars and dogs for last week
Investors in gold mining bonds leave shareholders in the dust
Rate-hike fever has Canadian bond managers eyeing short end
Currency traders brace for possibility of 'hawkish hold' by BoC
Number Crunchers
Sizing up 12 of the priciest stocks in the S&P 500
Ask Globe Investor
Question: If I generate $2,000 in a partial conversion RRIF (registered retirement income fund) (I'm 66) will I receive that $2,000 in dividends tax-free?
Answer: All money withdrawn from a RRIF or RRSP (registered retirement savings plan) is normally considered to be regular income and taxed at your marginal rate. However, for anyone 65 or older, the first $2,000 of RRIF income is eligible for the pension tax credit. The credit is 15 per cent of the allowable amount, or $300. The net result is that if you are in the lowest tax bracket that first $2,000 is tax-free. If you are in a higher bracket, you receive a reduced rate.
--Gordon Pape
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What's up in the days ahead
John Heinzl looks at a well-known Canadian stock that may soon see a cut to its dividend. Meanwhile, David Berman looks at whether the rally can continue in shares of high-flying Andrew Peller.
Click here to see the Globe Investor earnings and economic news calendar.
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Compiled by Gillian Livingston