Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO Capital Markets analyst Sohrab Movahedi recapped results for the major banks and reiterated top picks,
“Q4 earnings for the “Big 6” wrapped up on December 5 with NA, RY, and CM exceeding consensus expectations (most at CM with a ~7% beat), while BNS, TD, and unrated BMO fell shy. Cash operating net income to common shareholders across the “Big 6” was $13.4 billion in Q4/24, up ~4% from a year ago. Overall, we are cautiously optimistic heading into 2025, with moderation in credit costs (final stages of this credit cycle), an anticipated rebound in markets-related businesses, and strong capital positions (tailwinds from buybacks). Our 2026E estimates contemplate 7%+ earnings growth at the “Big 5” (excl. BM0). We made no changes to ratings and our Outperform-rated names remain RY, NA and CM … Credit: Across the “Big 6”, provision for credit losses in the quarter was $5.1 billion/49bps, up ~28% from last year’s $4.0 billion/40bps, with two banks (BNS and CM) reporting lower y/y provisions …ROE: NA and RY continued to lead peers in absolute ROE, at ~15.9% and ~14.9%, respectively. Three of the “Big 6” reported higher y/y ROE, with BNS and CM posting the largest y/y increases”
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Scotiabank strategist Hugo Ste-Marie provided further details on their recommendation to buy Canadian dividend stocks for 2025,
“Central bank tightening over 2022/2023 brought cash yield in excess of most leading dividend strategies, severely diminishing investor interest for these companies. Tech leadership (non-payers mostly) did not help. Case in point this November, one of the top non-payers, SHOP, gained 49% while one of the top dividend payers, BCE, tumbled 16%. With the pivot towards easing, the BoC is likely to go for deeper rate cuts than in the US, which should bring back investor preferences from cash (yielding above 5% in May, now closer to 3.5%) back to income strategies (our SQoRE Canada Top 30 Dividend Payers currently yields 4.2%, with an additional net buyback yield of +1.0%). Economists further predict that 3M T-bill will yield only 2.2%-2.4% in the coming years, bringing back a decisive yield advantage towards dividend strategies. We highlight the names currently selected by our SQoRE Canada Top 30 Dividend payers in exhibit 15. These combine high dividend yield, high buyback yield, dividend safety, defensiveness, and high quality to provide best-in-class income payers to investors”
The updated list of yield stocks is Endeavour Mining PLC, Toronto-Dominion Bank, Quebecor, Magna, Bank of Nova Scotia, Whitecap Resources, Power, Atco, iA Financial Corp, Great-West Lifeco, Premium Brands Holding, CCL Industries, Empire, Canadian National Railway, BCE, Imperial Oil, CIBC, Gildan Activewear, Parkland, Metro, Suncor Energy, Canadian Tire, Open Text, Canadian Natural Resources, Canadian Utilities, Allied Properties REIT, Fortis, Hydro One, Emera and TC Energy.
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Markets are positioned for a 50 basis point rate cut tomorrow, but BofA Securities expects only 25, and subsequently thinks the Canadian dollar could jump,
“For USD bears, in G10, the USD is most likely to see short-term weakness versus CAD and CHF, in our view. We expect 25 bp rate cut decisions for both the BoC and SNB this week. The market is pricing close to a 50bp BoC rate cut and 50% likelihood of a 50bp SNB rate cut as well. In the case of USDCAD, the spot price likely overshot last Friday, as the market overreacted to the rise of the Canada unemployment rate. We interpreted the labor report as more mixed than outright bearish for CAD. An out-of-consensus 25 bp BoC rate cut decision could lead to a USDCAD retracement back to 1.40 [US$0.7143]”.
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Diversion: “Do NOT listen to this Christmas song while driving: Study” – A Journal of Musical Things