MAR 2 2016 – Market Update

With the concern over the Canadian and global markets the last 6 months, we thought it wise to send an update of year to date.

The place to start is with the last of the big six Canadian Banks to report their earnings – Scotiabank. A 21% growth in their Mexico and Latin American operations contributed to 5.1% growth in profit this last Quarter. As a result, they boosted their dividend about 3%. This was the fourth dividend increase by the big banks in the last week, with CIBC rising 2.6%, TD 7.8%, and RBC about 2.5%. National Bank and BMO held theirs, but they have very healthy yields already. In the case of CIBC, this was the 6th consecutive quarterly increase, reminding us that the 8% long-term historical yearly dividend increase we have seen is not likely to fade anytime soon.

The market values of a diversified balanced portfolio have essentially been flat in the first 2 months of 2016. Of course they had a notoriously rough start as the media were quick to point out, but the last 2 weeks of February were strong. Like rental properties or real estate when prices remain the same, but our “rents” or income can increase by 8% per year, it is only a matter of time for proper valuation to be reflected and prices will rise as well.

The good news on dividend increases does not end with the banks. Other companies you own with your Portfolio Manager that have seen dividend increases so far in 2016 include Novo Nordisk, Brookfield Asset Management, Intact Financial, Toromont Industries, Bell Canada, 3M, CN Rail, Metro Inc., Home Capital, Gildan, Manulife, Open Text, Canadian Tire, CP Rail, Telus, Finning, Novartis, Thomson Reuters, TransCanada, Home Depot, Coke, Great West Life, and Cisco.

It is important to understand that increased profit and therefore, more money available for dividends, is not the only way to see your dividends and eventually share prices rise. The low interest rate environment, combined with what companies believe are temporarily low stock prices have led to a number of announced share buy backs. Home Capital, Gildan, Manulife, Magna, Open Text, Canadian Tire, CN Rail, CP Rail, Telus, Agrium, Saputo, Jean Coutu, Thomson Reuters, Transforce, and Finning amongst others will be going into the market to buy back its own shares. The math here is simple: the less shares out in the market, the higher the dividend will be for those who own the shares. In other words, increased earnings are shared with even fewer people, increasing dividends even more.

If we can move away from the fascination with quarterly, monthly, or weekly (not to mention daily!) changes in our portfolio values, you can see there are more important fundamental ways to measure performance. The first two months of the year have actually been very good, despite our portfolio values remaining the same.

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