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CIBC's Portfolio Strategy Head Sees Dividend Stocks Set to Rally

Strategic Insights

— 1 min read

CIBC World Markets' head of portfolio strategy, Ian de Verteuil, is optimistic about the prospects of dividend-paying stocks, citing a expected influx of investment assets from money market funds and GICs. Despite operational issues faced by REITs and communications companies, de Verteuil believes these headwinds are priced in, and the sector is poised for a rally. He notes that utilities and telcos, which have underperformed in the past year, are likely to join the dividend rally, driven by attractive yields and a declining trend in short-term interest rates.

Key Takeaways:

  • CIBC's head of portfolio strategy, Ian de Verteuil, expects dividend-paying stocks to continue their upward trajectory, driven by investment assets from money market funds and GICs.
  • De Verteuil estimates that C$100-billion in GICs are repriced every quarter, with a significant portion of this money likely to move towards equities.
  • Utilities, REITs, and communications companies, which have underperformed in the past year, are expected to join the dividend rally, driven by attractive yields and declining short-term interest rates.
  • The decline of short-term rates below the psychologically important 3 per cent threshold will be a catalyst for asset flows from money market instruments and GICs to income-generating equities.
  • De Verteuil notes that the operational issues faced by REITs and communications companies are more than priced in, and the sector is poised for a rally.

Statistics:

  • C$100-billion in GICs are repriced every quarter.
  • Between December 2021 and October 2023, the government of Canada three-month T-bill yield went from near zero to over 5 per cent.
  • The indicated yield on the entire S&P/TSX Composite is higher than those available in money market and GICs vehicles, according to de Verteuil's report.
  • The S&P 500 target was raised by 12.5 per cent to 6300 by BofA Securities head of equity and quantitative strategy Savita Subramanian.

Sources:

  • CIBC's research report by Ian de Verteuil
  • BofA Securities research report by Savita Subramanian

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