Optimism #76 - July 17, 2024
Dear clients and friends,We may be seeing the long-anticipated rotation from growth to value. Canadian value stocks are on a tear lately.
TD Bank up 4.78% over five days. Brookfield (BN) up over 6%. Even good old Canadian Tire up almost 5%. You are being rewarded for your patience. It must be to do with interest rates likely to drop when the Bank of Canada meets on July 24th.
In the early 1970s, we had the Nifty Fifty stocks, which behaved like Nvidia is today. They were resilient to the point of being unbreakable.
Then they dropped about 80% in value. The story repeats itself a quarter century later in the late 1990s. Here we are again... maybe.
Tesla is at 119 times earnings. Costco is at 53 times earnings. Costco? To put that in perspective, RBC trades @ 13 times, and CIBC at 10. Does Costco really have four or five times the growth potential of our banks? Maybe, but I don’t think so.
In June we saw dividend increases from:
Empire Company Ltd. (TSE:EMP.A): 9.6% Dividend Increase [Dividend Streak: 29 years, Yield: 2.3%]​ They own Sobey’s and (Canada) Safeway.
John Heinzl’s article on his dividend growth portfolio is excellent. Since starting in 2017, dividend income has nearly doubled. It’s this rising dividend income that will keep us out of poverty later in life. He says:
“… the portfolio was generating $4,094 of cash annually, based on dividend rates at the time. Now, thanks to scores of dividend increases and regular reinvestment of dividends, the portfolio’s annual income has grown to $7,590 – an increase of 85.4 per cent.”
If you have capital losses in your holding company or trust, consider triggering gains to offset them in the same tax year.
The simplest way to explain it is with new AMT rules, the capital loss is worth less going forward. It’s unfortunate.
Interest deductions for spousal loans are negatively affected by new AMT rules as well, but the concept remains wise.
A local accounting firm has a good article on estate planning with respect to digital assets. You can read it here.
Have a wonderful summer.
Derek Moran
