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[music] >> Hello, I'm Anthony Okolie in for Greg Bonnell, and welcome to MoneyTalk Live, brought to you by TD Direct Investing.
Every day, I'll be joined by guests from across TD, many of whom you'll only see here.
We're going to take you through what's moving the markets and answer your questions about investing.
Coming up on today's show, we will discuss the potential opportunities in the preferred shares market with James Hunter from TD Asset Management. And in today's education segment, Caitlin Cormier will take us through how to use the quote tool on Advanced Dashboard. Here's how you can get in touch with us. Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before he gets our Guest of the day, let's get you an update on the markets. We will start here in Canada with the TSX Composite Index.
It opened in negative territory, dragged down by material stocks. Investors are also assessing the latest GDP print for February and what it may mean for interest rates here at home.
The TSX Composite Index right now is trading down 134 points or .8%.
Taking a look at some of the big names, shares of Ivanhoe mines are under pressure today after the copper miner reported a quarterly loss, primarily the result of a non-cash loss on convertible bonds due to a 26% quarterly share price increase.
The stock right now is down about 8 1/2%.
Turning south of the border, Wall Street is also trading into the red after higher-than-expected wage data raised fresh inflation concerns ahead of the Fed's decision on Wednesday.
A measure of wages and benefits rose 1.2% in the March quarter versus consensus estimates for a 1% increase.
In addition to that, markets are also digesting some of the earnings reports. We got disappointing earnings for McDonald's today and the S&P 500 is down almost 34 points or .6%.
Take a look at the NASDAQ composite index, it's also trading in the red following some mixed earnings results from the Magnificent Seven. It is trading down about 143.4.9 percent. Of course, later this week, we will get some results from Apple and e-commerce giant Amazon.
Taking a look at some of the big movers, shares of Eli Lilly are trading higher after the Pharma giant posted first quarter adjusted it profits the top Wall Streets estimates. Right now the stock is up almost 4.9%. And that's your market update.
Well, we have seen some positive performance out of equity so far this year. There is also some interesting trends happening in other part of the market that doesn't get coverage quite as much. Joining us now to discuss what he has seen in the preferred sharemarket is James Hunter, VP and Portfolio manager with TD Asset Management. James, thanks for joining us.
>> Hiatt, Anthony. Nice to be back.
>> Recently, we have seen a rally in preferred shares. What is driving this trend?
>> Preferred shares are up about 20% off the bottom we saw back in October.
I would say that's a welcome relief for investors. It has been a painful couple of years and we have seen in three 30% drawdowns in the last 10 years. You can really see that in the chart I brought along. It takes the preferred share index and converted to a weighted average price per share. In 2015, you can see prices came down a lot as oil prices and interest rates collapsed, 2020, of course, we had the pandemic, and then in 2022, 2023, this inflationary environment and fears of a recession. So preferred shares have had a much better bit in the last couple of months, as you mentioned. I think that's for two reasons. Number one, we have clarity around the tax status. Recall that in November and it invited institutional investors back to the market. Number two, banks have started to resume calling some of their preferred shares and that is a theme we have seen before but it's a good catalyst for the market. One sentiment was so negatively it was in the fall, if you get a catalyst, prices can increase quickly.
>> Let's talk about bank preferred shares.
What's happening there?
>> In the banks, you have to remember that they make up about 30% of the market for Canadian preferreds so they are important in the last time we saw a new issuance was in 2019, so it's been a number of years.
And what the banks actually started doing a number of years ago was calling the men and they've been replacing them with other types of securities really to diversify their sources of funding and because they can be a cheaper cost of capital.
So that's sort of what we've been seeing and I think one thing to keep in mind is that there was a pause on that activity, that calling and the redemptions, and that pause was sort of last year and the year before and it happen for a couple of reasons. One was that the banks had to increase their capital ratios. The regulator was increasing the capital requirements so that was something they had to catch up on and the other factor was acquisitions. If you remember Royal Bank was acquiring HSBC Canada, BMO was acquiring the Bank of the West, and those acquisitions, they needed a digestion.
Because there are legal risks, operational risks, so we just take some time to get through but those acquisitions have been completed so that has helped cause the banks to start redeeming preferreds.
>> Outside of the banks, what are some other types of issuers of preferreds?
>> You got pipeline companies, utility companies, some diversified financials.
It's not just financials although that's about 60% of the market, and I would say you're not seeing the same types of trends and those other parts of the market.
>> Why is that?
>> A lot of the issuers do not have the option to issue many other types of securities. The banks are really well-known companies, they are very big, so they have different verticals in the capital markets that they can hit which is not to say that the utilities were pipeline companies do not have support, they do, but is not as common to see them going into other types of capital. So most of those issuers have been resetting their preferred shares.
>> Given that backdrop, where do you see things going from here for preferreds?
>> Like we talked about, it's been a very good six months for preferreds and I would say the outlook for today is still positive. If you think about it, he bought a yield of over 5% and you've probably got 5% upside or more to get prices back towards those longer-term averages so 10% total return, it's still pretty attractive. The things that I would keep in mind is that we've got that, as I mentioned, the clarity around the tax status. That's not going to change, and then the other thing is the banks are going to redeem their preferred shares, a trend we have started to see, and that could go on for a number of years and I think those two factors are going to help lift the market a little bit higher over time.
>> He talked about some of the positives, what are some risks to the sector?
>> Yeah, that's a good question, and I think the number one risk keep in mind would be recession. It's the one thing everyone's been worried about. It's been on our minds for a number of years. A recession would do a few things, it would hurt corporate profitability, credit spreads would probably widen, interest rates could come down and if they came down a lot, I think that would be an important negative for the preferred sharemarket.
It's just not something we are seeing today. We've got the population growth in Canada, we've got budget deficits in higher commodity prices, those are all things that should help support the economy and that's why I think the recession fears are bit overblown.
>> A great start to the discussion and we will get your questions about preferred shares for James Hunter in just a moment.
And a reminder that you can get in touch with us any time.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Now, here's an update on the top stories in the business world today and a look at how the markets are trading.
Canada's economy grew for a second straight month in February, rising 0.2% month over month. The print came in slightly below Statistics Canada's advanced guidance and market expectations.
February's reading was similar to January with services being the biggest driver while the good sector was essentially unchanged. The flash estimate for March points to flat growth due to gains and utilities and real estate being offset by decreases in manufacturing and trade. Now turning to earnings news, Tim Hortons parent Restaurant Brands reported better-than-expected results in the first quarter amid strong demand for its fast food offerings. The Toronto-based company, which owns a Tim Hortons, Popeye's chicken, Burger King and firehouse subs reported an 18% jump in profits while first-quarter revenues grew by more than 9% on a year-over-year basis.
Now, despite the solid results, it did report from some Tim Hortons franchise owners, profits are not keeping up with rising costs.
Restaurant Brands International is up 3.8% on that earnings boost.
McDonald's has suffered its first profit mission more than two years. The fast food giant reported adjusted earnings-per-share of $2.70, missing estimates by two pennies.
The food retailer blamed the prophet miss on higher prices which scared away some low income customers and boycotts over the conflict in Gaza which are the chains of Middle East sales again.
Currently, shares of McDonald's are down mildly, about .08%.
And here's how the main benchmark index in Canada is trading. Currently, the TSX Composite Index is still down about 193 points, just under 1%.
Taking a look at the US, the S&P 500 is also down 39 point so were .8%.
All right, we are back with James Hunter from TD Asset Management, taking your questions about preferred shares.
We will start with the first question.
This is on George Weston preferreds. I would like to get your thoughts on George Weston preferreds a class shares.
>> That's a preferred share that I would say is not our favourite and there's a couple of reasons for that. One is that the George Weston preferreds are perpetual and what that means is that they pay a fixed dividend and the dividend does not change. That is not ideal for an environment where there is a little more inflation than anticipated and it's a bit of a sticky inflationary environment. If bond yields were to continue to rise, it's hard to see where you get much capital appreciation.
The other part of that is yield and the yield on that security is pretty good. I think it's around 6 1/2%, but the way we look at her, we would compare that to all the other perpetuals that we could buy and the yield versus other perpetuals is just a little bit lower and so you think when you're buying that security, you're paying up a little bit for a scarcity premium and that's usually not the approach that we would take.
>> Okay. Let's move to the next question.
This is how to compare preferreds.
How can I compare preferred shares?
>> That's a great question, and I would say that is complicated. One of the reasons why we would sort of recommend the people use an ETF or mutual fund to get their preferred share exposure, you get that instant diversification.
But to take a stab at that question, the first thing you want to do is compare preferred shares alternatives like fixed income cash.
When we do that today, we see a higher after tax that yielded four preferred shares versus fixed income. You're getting a similar credit quality in terms of the issuers. It bonds are a little higher on the capital structure but the issuers of the same but you have to accept a lower yield for that.
We still like preferred shares by comparing it that way. The other thing you could do is compare the different types of preferred shares. Floaters have the best deal right now, it's about 10%. That significant. The thing to keep in mind is that if the bank of Canada starts cutting rates, which we are likely to see this year and more in 2025, the dividends on the securities will come down. That's a risk to keep in mind in one of the reasons why you like rate resets better is because you got dividends that over the next couple of years, they are actually gonna reset higher and that's because they are being compared to the 2019 or 2020 level, it's a five-year reset, so we still like the rate resets versus the other groups.
The third way you could do it is to compare preferred shares within an issuer.
So Enbridge a versus Enbridge B.
That's where a lot of the math in detail comes in. You have to forecast what the dividends will be for the next five years.
You've got to assign a little bit of credit risk or interest rate risk between the two securities. One will look overvalued and will look undervalued.
As you can imagine, I have some people who help me with that to crunch the numbers and it is tricky to do.
>> Next question. Should we consider preferred shares as part of fixed income or just stay with bonds?
We get that question a lot.
>> We do.
We consider preferred shares as a substitute for fixed income. They both do not participate in the growth of the company or the growth of the economy, and they both offer a really great yield so what you have to think about is just that the credit risk between the two different types of securities and then within the issuers. Keep in mind that preferred shares tend to be more volatile and for sure more sensitive to interest rate risk but generally speaking, like a lot of issuers in the preferred share market are similar to bond issuers which is why we think they are a good substitute to one another.
>> Great start to the discussion.
As always, make sure you do your own research before making any investment decisions.
We will get back to your questions for James Hunter on preferred shares in just a moment, and a reminder that you can get in touch with us at any time. Just email moneytalklive@td.com.
Now, let's get to today's educational segment.
Today, we are having a look at TD's Advanced Dashboard, PlatForm designed for active traders available through TD Direct Investing. Caitlin Cormier, Senior client education instructor at TD Direct Investing joins us now. You are going to walk us through the quote details tool isn't Advanced Dashboard.
>> Absolutely. Great to see you on the show hosting.
Excited to go over one of the tools in Advanced Dashboard that I really find poles and a bunch of different tools into one area so I think it's going to be really helpful for investors looking to do research on individual stock so let's go ahead and hop right into Advanced Dashboard.
So I've gone ahead and actually created a workspace and added what is called the quote details screen, so this particular quote detail, you just come under trading, come down here to quote detail and that's where you can find it in order to add it to a Leo, and so we can see here the first thing listed is going to be order entry so this is where you can go ahead in place a trade. Next up we have quote information so we are getting a little bit of a graph here to understand how the stock is performing, as well as information about how to buy and sell it, what analysts are saying about it, lots of different things here.
Below that, we have market depth. This is level II data, it's only available, it may have an additional cost in order to have this type of data but it's basically showing you what the next best bid and ask prices are for the stock so instead of just finding out the current bid and ask, you can see the next best bid and asks that are available as well as live streaming news about this company. As news comes in, you can see there's a few different articles, one that came in at 1059 today, a couple of others or a bunch that came in today and that will continue to update, even if we are here right now and a story comes in, it will pop up live streaming like the rest of the platform on the news tab.
Now, one of the other great features of Advanced Dashboard is being able to link tools together so I am going to quickly bring up under trading, I am going to choose a watchlist and I am going to go ahead and put my watchlist and let's just go ahead and move this around a little bit, I am going to put the watchlist on the same page so that I can actually link the watchlist and this tool. Let's see if I get my watchlist here. I've got everything… There we go. I needed to make that a little bit smaller. Okay.
Here we have the watchlist, I will make it a little bit skinnier so I can put them side-by-side and I'm going to choose one of my watchlist here and what I want to do is I want to link these two tools together so I'm going to come here on the top left-hand side I'm going to select a channel. I like to receive information in my quote detail. I'm going to receive it under Green and watchlist I'm going to send to green.
Basically we are putting them both on the same, sending information from watchlist over to order entry so what that means is as soon as I click on a stock on the right-hand side, we see the side will update with the information about that stock so you can see right here the quote information is updated, you can see Apple information on the bottom here as far as the new stories that are coming in as well. Definitely a great tool to have to be able to link back and forth and quickly see a lot of information about the company that you are doing a little bit of research on.
>> That's a great look at some of the features and tools for Advanced Dashboard.
Working clients go to get additional education on Advanced Dashboard?
>> Absolutely. I covered a ton of things in a pretty quick amount of time on Advanced Dashboard, kind of the linking fees, talking about different tools, market depth. If these concepts are relatively new to you or maybe you want to learn more about it and see if this platform might make sense for you, then let's hop back in. I have a couple of different places I contributor. The first one is in the learn tab in Advanced Dashboard. Just click right here. You can click on video lessons and it will bring up a whole tab that has a number of videos on some of the different features within Advanced Dashboard. You can watch them right here. You can also click on learn and master classes which will take you to a second window here with the master class schedule for Advanced Dashboard and it will show what the upcoming classes are to get additional information on it. We can also go into a broker, so the learn tab, click on video lessons and go under courses and you will see here that we have a relatively new course here with my colleague, Hiren, who you will recognize from other MoneyTalk education segment and he actually has six different videos of kind of an extended period of time that really get in-depth on Advanced Dashboard so if you're really looking for some additional information, really kind of dive into these tools and get to know them better, this is an excellent place to do it.
You can take it piece by piece if you like but that would be a great place to get more information about Advanced Dashboard.
Finally, remember we have our YouTube and Instagram pages so I think we have our QR codes on the screen so that you can follow those and stay up-to-date with all of the most recent educational content available so YouTube and Instagram are two great places to follow TD Direct Investing as well.
>> Caitlin, I think you covered all the bases there. Thanks very much for joining us.
>> Thank you, Anthony.
>> For more educational resources, you can check at the learning centre on web broker.
Before you get back to your questions about preferred shares for James Hunter, a reminder of how you can get in touch with us.
>> Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
>> Okay, we are back with James Hunter, taking your questions about preferred shares. Next question is, other than banks, what other sectors you think will want to redeem preferred shares, example cash rich energy companies?
What are your thoughts?
>> Yeah, that's another really good question. I would phrase a little bit differently because what is causing redemptions and other sectors would actually be the rate reset spread rather than the company's participation in that sector. So preferred shares that are rate reset, they can have spreads anywhere between 100 basis points, 1%, or up to 500 basis points, 5%.
And if you are an issuer that is cash flow rich right now, for example some of the energy producers, and you have a rate reset with a 450 basis point spread, that would be sort of a very expensive cost of funding with the five year bond yield.
>> When you're talking about that's right, it's between that and the five year bond yield?
>> That's correct.
And so how you get the dollar amount of dividend that the security would pay as you add the five year bond yield to that spread. So that number for some of these companies with a really high rate reset spread would be 7%, 8%, depending on the security.
So those securities are more likely to be called rather than which industry group you look at their examples within energy producers as well as diversified financials.
>> Next question. What does your guest think a fixed rate preferred shares for a long term hold?
>> Interesting question. What I would say is that if you are going to have like a longer, the longer your time horizon is, we would have a preference for common shares, public equities, they have the ability to grow their earnings over time, grow the dividends and they participate as the economy grows, so that would be our preference for the long term. I would say that if you look at some of our balanced mutual funds and portfolios, the allocation of preferred shares in the 5% range, the reason we have that is because it's a really good source of tax efficient income and it's hard to replicate that.
And we particularly like to increase those allocations at times when preferred shares are really cheap, when they trade at say 20% discount of power or more which is what we saw back in the fall. That is when they are particularly attractive but the longer timeframe goes, the more attractive common shares are.
>> What are your guests thoughts on fixed rate/rate reset preferred shares for the long term?
>> Right, for the long term, it sort of goes back to some of the comments I was making earlier. Rate resets are probably in a better position than floaters where you have to ride the interest rate cycle up and down and I think they are in a better position than perpetual because let's say we get stuck in an inflationary environment.
It's not bad inflation, not five or 10% like the 1970s that maybe it's 3% for longer than people would be comfortable with.
In that environment, perpetual dividend is fixed, it just doesn't change, where is rate resets, particularly those really low reset spreads that may be reset in 2019 or 2020 last, they will reset to much higher dividends in 2024 and 2025.
Those are the parts of the market that we would be more interested in.
>> That makes sense.
Okay, this question is on Brookfield office properties. Do you see any credit risk for Brookfield office properties preferreds in light of the current office vacancy rates? There yield was up near 12%.
>> Yeah, it's a good question. It's one that we get from our clients for sure.
And I have to say that there is credit risk with Brookfield property and that is why you are getting paid such a significant yield.
>> What is driving the credit risk?
>> It's their exposure to the office market and it's such a big part of what they do obviously that the SNP, they actually downgraded their preferred shares to P4 high which is a little bit below investment grade in recognition of some of the trends they are seeing in the fundamentals of the companies. The one that we have noticed is that if you look at their non-core office portfolio in the US, occupation there has fallen and it's a good example of there is hair on the story and credit risk. The thing that gives us some comfort is that if you look at their core office portfolio, occupancy there is 95%.
They have a lot of trophy assets in big cities like Toronto, New York and London so we think Brookfield offices is going to muddle through this tricky environment and management does have a good track record over the long term so we think you're getting paid to take the risk but it is risky.
>> Okay, we will get back to your questions for James Hunter on preferred shares in just a moment.
As always, make sure you do your own research before making any investment decisions.
and a reminder that unit touch with us at any time.
>> Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
[music] >> We are having a look at TD's Advanced Dashboard, platform designed for active traders available through TD Direct Investing. We are looking at the map function which gives you a view of the market movers on the TSX 60 by Price and volume.
We will take a look at the energy stocks in the top left-hand side of the screen.
We are seeing Cameco, a Saskatchewan-based uranium company, it is, we are seeing red on the screen. The company lost revenue, it fell in the first quarter, so we are seeing some selling their. Also basic material stocks in the bottom left corner, seeing some weakness in the gold names, Kinross Gold, Barrick Gold, also seeing some selling activity as well.
Taking a look at the top right corner, seeing some strength there and some of the financials.
Let's take a look at the S&P 100.
We will take a look at these cyclical consumer sector in the bottom there. Has low, of course, is taking of quite a lot of real estate there. It's in the red. We are seeing some pullback in its share price after the company saw big gains on Monday. The EV maker said that local Chinese office authorities removed restrictions on its car so it had big gains on Monday and perhaps harassing some pullback today. Also seeing some weakness and other car companies such as GM, Ford, seeing some red there.
If we look at the top rate, healthcare, Eli Lilly reported strong results, it's up more than 5% today. Also strong earnings from 3M as well.
It is up over 3% on some strong results.
All right, we are back taking a look at the next question here. This is about Algonquin Power. Your thoughts on Algonquin class a preferred shares?
>> Interesting question. Algonquin Power has some good utility assets. They are pretty diversified across many jurisdictions across North America and those utility assets have some value. I would say that their founding CEO and CFO, they left the company a number of years ago. They had an excellent run and moved on or retired and the new management team has had to adjust the company to this higher interest rate world we live in and to be honest, it's a tough adjustment because they have a little bit more leverage than they probably should and so we think there's little risk around their preferred shares.
It is probably another example of a company where you're getting paid reasonably well to take that risk but it's probably another name, another name that is a credit risk where you need to be careful.
>> We will move to the next question on rate resets. This seems to be a popular question. Rate reset preferred shares are resetting run of 6.5%.
Are they okay for a nonregistered account?
>> Yeah, so where an individual would want to hold preferred shares, it sort of depends on their individual financial circumstances and situation that I can't give specific advice on but I would say that generally, if you are paying tax here in Ontario and you are in a lower tax bracket, holding a preferred share in a nonregistered account is usually a good place to have it and that's because you get the tax credits and they are very advantageous. Coming at it from the other perspective, if you are in a very high tax bracket, collecting that six, seven, 8% yield, that can be really good for a tax-free savings account but it depends on the individual circumstances.
>> Okay, that's all the time we have of your questions. Before we go, quick reminder about the general outlook for preferred shares right now.
>> Yeah, so the outlook we have on preferred shares is still positive. It's been a fantastic run in the last six months. We have come very meaningfully off the bottom by about 20% but you still gotta yield about 5%, we still think there is a 5% capital gains opportunity to get back to those longer-term averages and you got a catalyst or two in play which is the clarity on the tax status and you got the bank's redeeming preferred shares again so I think that's going to continue to lift the markets slowly and steadily over the next 12 months.
>> Great conversation. Thanks for joining us, James.
>> My pleasure.
>> Our thanks to James Hunter, VP and Portfolio manager with TD Asset Management.
As always, make sure you do your own research before making any investment decisions.
and Stadium. On one statio, Andriy Yastreb, VP, portfolio research at TD Asset Management will be our Guest taking your questions about energy stocks.
And a reminder that you can get a head start.
Just email MoneyTalkLive@TD.com.
That's all for the show today. Take care.
We will see you tomorrow.
[music]
Every day, I'll be joined by guests from across TD, many of whom you'll only see here.
We're going to take you through what's moving the markets and answer your questions about investing.
Coming up on today's show, we will discuss the potential opportunities in the preferred shares market with James Hunter from TD Asset Management. And in today's education segment, Caitlin Cormier will take us through how to use the quote tool on Advanced Dashboard. Here's how you can get in touch with us. Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Before he gets our Guest of the day, let's get you an update on the markets. We will start here in Canada with the TSX Composite Index.
It opened in negative territory, dragged down by material stocks. Investors are also assessing the latest GDP print for February and what it may mean for interest rates here at home.
The TSX Composite Index right now is trading down 134 points or .8%.
Taking a look at some of the big names, shares of Ivanhoe mines are under pressure today after the copper miner reported a quarterly loss, primarily the result of a non-cash loss on convertible bonds due to a 26% quarterly share price increase.
The stock right now is down about 8 1/2%.
Turning south of the border, Wall Street is also trading into the red after higher-than-expected wage data raised fresh inflation concerns ahead of the Fed's decision on Wednesday.
A measure of wages and benefits rose 1.2% in the March quarter versus consensus estimates for a 1% increase.
In addition to that, markets are also digesting some of the earnings reports. We got disappointing earnings for McDonald's today and the S&P 500 is down almost 34 points or .6%.
Take a look at the NASDAQ composite index, it's also trading in the red following some mixed earnings results from the Magnificent Seven. It is trading down about 143.4.9 percent. Of course, later this week, we will get some results from Apple and e-commerce giant Amazon.
Taking a look at some of the big movers, shares of Eli Lilly are trading higher after the Pharma giant posted first quarter adjusted it profits the top Wall Streets estimates. Right now the stock is up almost 4.9%. And that's your market update.
Well, we have seen some positive performance out of equity so far this year. There is also some interesting trends happening in other part of the market that doesn't get coverage quite as much. Joining us now to discuss what he has seen in the preferred sharemarket is James Hunter, VP and Portfolio manager with TD Asset Management. James, thanks for joining us.
>> Hiatt, Anthony. Nice to be back.
>> Recently, we have seen a rally in preferred shares. What is driving this trend?
>> Preferred shares are up about 20% off the bottom we saw back in October.
I would say that's a welcome relief for investors. It has been a painful couple of years and we have seen in three 30% drawdowns in the last 10 years. You can really see that in the chart I brought along. It takes the preferred share index and converted to a weighted average price per share. In 2015, you can see prices came down a lot as oil prices and interest rates collapsed, 2020, of course, we had the pandemic, and then in 2022, 2023, this inflationary environment and fears of a recession. So preferred shares have had a much better bit in the last couple of months, as you mentioned. I think that's for two reasons. Number one, we have clarity around the tax status. Recall that in November and it invited institutional investors back to the market. Number two, banks have started to resume calling some of their preferred shares and that is a theme we have seen before but it's a good catalyst for the market. One sentiment was so negatively it was in the fall, if you get a catalyst, prices can increase quickly.
>> Let's talk about bank preferred shares.
What's happening there?
>> In the banks, you have to remember that they make up about 30% of the market for Canadian preferreds so they are important in the last time we saw a new issuance was in 2019, so it's been a number of years.
And what the banks actually started doing a number of years ago was calling the men and they've been replacing them with other types of securities really to diversify their sources of funding and because they can be a cheaper cost of capital.
So that's sort of what we've been seeing and I think one thing to keep in mind is that there was a pause on that activity, that calling and the redemptions, and that pause was sort of last year and the year before and it happen for a couple of reasons. One was that the banks had to increase their capital ratios. The regulator was increasing the capital requirements so that was something they had to catch up on and the other factor was acquisitions. If you remember Royal Bank was acquiring HSBC Canada, BMO was acquiring the Bank of the West, and those acquisitions, they needed a digestion.
Because there are legal risks, operational risks, so we just take some time to get through but those acquisitions have been completed so that has helped cause the banks to start redeeming preferreds.
>> Outside of the banks, what are some other types of issuers of preferreds?
>> You got pipeline companies, utility companies, some diversified financials.
It's not just financials although that's about 60% of the market, and I would say you're not seeing the same types of trends and those other parts of the market.
>> Why is that?
>> A lot of the issuers do not have the option to issue many other types of securities. The banks are really well-known companies, they are very big, so they have different verticals in the capital markets that they can hit which is not to say that the utilities were pipeline companies do not have support, they do, but is not as common to see them going into other types of capital. So most of those issuers have been resetting their preferred shares.
>> Given that backdrop, where do you see things going from here for preferreds?
>> Like we talked about, it's been a very good six months for preferreds and I would say the outlook for today is still positive. If you think about it, he bought a yield of over 5% and you've probably got 5% upside or more to get prices back towards those longer-term averages so 10% total return, it's still pretty attractive. The things that I would keep in mind is that we've got that, as I mentioned, the clarity around the tax status. That's not going to change, and then the other thing is the banks are going to redeem their preferred shares, a trend we have started to see, and that could go on for a number of years and I think those two factors are going to help lift the market a little bit higher over time.
>> He talked about some of the positives, what are some risks to the sector?
>> Yeah, that's a good question, and I think the number one risk keep in mind would be recession. It's the one thing everyone's been worried about. It's been on our minds for a number of years. A recession would do a few things, it would hurt corporate profitability, credit spreads would probably widen, interest rates could come down and if they came down a lot, I think that would be an important negative for the preferred sharemarket.
It's just not something we are seeing today. We've got the population growth in Canada, we've got budget deficits in higher commodity prices, those are all things that should help support the economy and that's why I think the recession fears are bit overblown.
>> A great start to the discussion and we will get your questions about preferred shares for James Hunter in just a moment.
And a reminder that you can get in touch with us any time.
Just email moneytalklive@td.com or fill out the viewer response box under the video player on WebBroker.
Now, here's an update on the top stories in the business world today and a look at how the markets are trading.
Canada's economy grew for a second straight month in February, rising 0.2% month over month. The print came in slightly below Statistics Canada's advanced guidance and market expectations.
February's reading was similar to January with services being the biggest driver while the good sector was essentially unchanged. The flash estimate for March points to flat growth due to gains and utilities and real estate being offset by decreases in manufacturing and trade. Now turning to earnings news, Tim Hortons parent Restaurant Brands reported better-than-expected results in the first quarter amid strong demand for its fast food offerings. The Toronto-based company, which owns a Tim Hortons, Popeye's chicken, Burger King and firehouse subs reported an 18% jump in profits while first-quarter revenues grew by more than 9% on a year-over-year basis.
Now, despite the solid results, it did report from some Tim Hortons franchise owners, profits are not keeping up with rising costs.
Restaurant Brands International is up 3.8% on that earnings boost.
McDonald's has suffered its first profit mission more than two years. The fast food giant reported adjusted earnings-per-share of $2.70, missing estimates by two pennies.
The food retailer blamed the prophet miss on higher prices which scared away some low income customers and boycotts over the conflict in Gaza which are the chains of Middle East sales again.
Currently, shares of McDonald's are down mildly, about .08%.
And here's how the main benchmark index in Canada is trading. Currently, the TSX Composite Index is still down about 193 points, just under 1%.
Taking a look at the US, the S&P 500 is also down 39 point so were .8%.
All right, we are back with James Hunter from TD Asset Management, taking your questions about preferred shares.
We will start with the first question.
This is on George Weston preferreds. I would like to get your thoughts on George Weston preferreds a class shares.
>> That's a preferred share that I would say is not our favourite and there's a couple of reasons for that. One is that the George Weston preferreds are perpetual and what that means is that they pay a fixed dividend and the dividend does not change. That is not ideal for an environment where there is a little more inflation than anticipated and it's a bit of a sticky inflationary environment. If bond yields were to continue to rise, it's hard to see where you get much capital appreciation.
The other part of that is yield and the yield on that security is pretty good. I think it's around 6 1/2%, but the way we look at her, we would compare that to all the other perpetuals that we could buy and the yield versus other perpetuals is just a little bit lower and so you think when you're buying that security, you're paying up a little bit for a scarcity premium and that's usually not the approach that we would take.
>> Okay. Let's move to the next question.
This is how to compare preferreds.
How can I compare preferred shares?
>> That's a great question, and I would say that is complicated. One of the reasons why we would sort of recommend the people use an ETF or mutual fund to get their preferred share exposure, you get that instant diversification.
But to take a stab at that question, the first thing you want to do is compare preferred shares alternatives like fixed income cash.
When we do that today, we see a higher after tax that yielded four preferred shares versus fixed income. You're getting a similar credit quality in terms of the issuers. It bonds are a little higher on the capital structure but the issuers of the same but you have to accept a lower yield for that.
We still like preferred shares by comparing it that way. The other thing you could do is compare the different types of preferred shares. Floaters have the best deal right now, it's about 10%. That significant. The thing to keep in mind is that if the bank of Canada starts cutting rates, which we are likely to see this year and more in 2025, the dividends on the securities will come down. That's a risk to keep in mind in one of the reasons why you like rate resets better is because you got dividends that over the next couple of years, they are actually gonna reset higher and that's because they are being compared to the 2019 or 2020 level, it's a five-year reset, so we still like the rate resets versus the other groups.
The third way you could do it is to compare preferred shares within an issuer.
So Enbridge a versus Enbridge B.
That's where a lot of the math in detail comes in. You have to forecast what the dividends will be for the next five years.
You've got to assign a little bit of credit risk or interest rate risk between the two securities. One will look overvalued and will look undervalued.
As you can imagine, I have some people who help me with that to crunch the numbers and it is tricky to do.
>> Next question. Should we consider preferred shares as part of fixed income or just stay with bonds?
We get that question a lot.
>> We do.
We consider preferred shares as a substitute for fixed income. They both do not participate in the growth of the company or the growth of the economy, and they both offer a really great yield so what you have to think about is just that the credit risk between the two different types of securities and then within the issuers. Keep in mind that preferred shares tend to be more volatile and for sure more sensitive to interest rate risk but generally speaking, like a lot of issuers in the preferred share market are similar to bond issuers which is why we think they are a good substitute to one another.
>> Great start to the discussion.
As always, make sure you do your own research before making any investment decisions.
We will get back to your questions for James Hunter on preferred shares in just a moment, and a reminder that you can get in touch with us at any time. Just email moneytalklive@td.com.
Now, let's get to today's educational segment.
Today, we are having a look at TD's Advanced Dashboard, PlatForm designed for active traders available through TD Direct Investing. Caitlin Cormier, Senior client education instructor at TD Direct Investing joins us now. You are going to walk us through the quote details tool isn't Advanced Dashboard.
>> Absolutely. Great to see you on the show hosting.
Excited to go over one of the tools in Advanced Dashboard that I really find poles and a bunch of different tools into one area so I think it's going to be really helpful for investors looking to do research on individual stock so let's go ahead and hop right into Advanced Dashboard.
So I've gone ahead and actually created a workspace and added what is called the quote details screen, so this particular quote detail, you just come under trading, come down here to quote detail and that's where you can find it in order to add it to a Leo, and so we can see here the first thing listed is going to be order entry so this is where you can go ahead in place a trade. Next up we have quote information so we are getting a little bit of a graph here to understand how the stock is performing, as well as information about how to buy and sell it, what analysts are saying about it, lots of different things here.
Below that, we have market depth. This is level II data, it's only available, it may have an additional cost in order to have this type of data but it's basically showing you what the next best bid and ask prices are for the stock so instead of just finding out the current bid and ask, you can see the next best bid and asks that are available as well as live streaming news about this company. As news comes in, you can see there's a few different articles, one that came in at 1059 today, a couple of others or a bunch that came in today and that will continue to update, even if we are here right now and a story comes in, it will pop up live streaming like the rest of the platform on the news tab.
Now, one of the other great features of Advanced Dashboard is being able to link tools together so I am going to quickly bring up under trading, I am going to choose a watchlist and I am going to go ahead and put my watchlist and let's just go ahead and move this around a little bit, I am going to put the watchlist on the same page so that I can actually link the watchlist and this tool. Let's see if I get my watchlist here. I've got everything… There we go. I needed to make that a little bit smaller. Okay.
Here we have the watchlist, I will make it a little bit skinnier so I can put them side-by-side and I'm going to choose one of my watchlist here and what I want to do is I want to link these two tools together so I'm going to come here on the top left-hand side I'm going to select a channel. I like to receive information in my quote detail. I'm going to receive it under Green and watchlist I'm going to send to green.
Basically we are putting them both on the same, sending information from watchlist over to order entry so what that means is as soon as I click on a stock on the right-hand side, we see the side will update with the information about that stock so you can see right here the quote information is updated, you can see Apple information on the bottom here as far as the new stories that are coming in as well. Definitely a great tool to have to be able to link back and forth and quickly see a lot of information about the company that you are doing a little bit of research on.
>> That's a great look at some of the features and tools for Advanced Dashboard.
Working clients go to get additional education on Advanced Dashboard?
>> Absolutely. I covered a ton of things in a pretty quick amount of time on Advanced Dashboard, kind of the linking fees, talking about different tools, market depth. If these concepts are relatively new to you or maybe you want to learn more about it and see if this platform might make sense for you, then let's hop back in. I have a couple of different places I contributor. The first one is in the learn tab in Advanced Dashboard. Just click right here. You can click on video lessons and it will bring up a whole tab that has a number of videos on some of the different features within Advanced Dashboard. You can watch them right here. You can also click on learn and master classes which will take you to a second window here with the master class schedule for Advanced Dashboard and it will show what the upcoming classes are to get additional information on it. We can also go into a broker, so the learn tab, click on video lessons and go under courses and you will see here that we have a relatively new course here with my colleague, Hiren, who you will recognize from other MoneyTalk education segment and he actually has six different videos of kind of an extended period of time that really get in-depth on Advanced Dashboard so if you're really looking for some additional information, really kind of dive into these tools and get to know them better, this is an excellent place to do it.
You can take it piece by piece if you like but that would be a great place to get more information about Advanced Dashboard.
Finally, remember we have our YouTube and Instagram pages so I think we have our QR codes on the screen so that you can follow those and stay up-to-date with all of the most recent educational content available so YouTube and Instagram are two great places to follow TD Direct Investing as well.
>> Caitlin, I think you covered all the bases there. Thanks very much for joining us.
>> Thank you, Anthony.
>> For more educational resources, you can check at the learning centre on web broker.
Before you get back to your questions about preferred shares for James Hunter, a reminder of how you can get in touch with us.
>> Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
>> Okay, we are back with James Hunter, taking your questions about preferred shares. Next question is, other than banks, what other sectors you think will want to redeem preferred shares, example cash rich energy companies?
What are your thoughts?
>> Yeah, that's another really good question. I would phrase a little bit differently because what is causing redemptions and other sectors would actually be the rate reset spread rather than the company's participation in that sector. So preferred shares that are rate reset, they can have spreads anywhere between 100 basis points, 1%, or up to 500 basis points, 5%.
And if you are an issuer that is cash flow rich right now, for example some of the energy producers, and you have a rate reset with a 450 basis point spread, that would be sort of a very expensive cost of funding with the five year bond yield.
>> When you're talking about that's right, it's between that and the five year bond yield?
>> That's correct.
And so how you get the dollar amount of dividend that the security would pay as you add the five year bond yield to that spread. So that number for some of these companies with a really high rate reset spread would be 7%, 8%, depending on the security.
So those securities are more likely to be called rather than which industry group you look at their examples within energy producers as well as diversified financials.
>> Next question. What does your guest think a fixed rate preferred shares for a long term hold?
>> Interesting question. What I would say is that if you are going to have like a longer, the longer your time horizon is, we would have a preference for common shares, public equities, they have the ability to grow their earnings over time, grow the dividends and they participate as the economy grows, so that would be our preference for the long term. I would say that if you look at some of our balanced mutual funds and portfolios, the allocation of preferred shares in the 5% range, the reason we have that is because it's a really good source of tax efficient income and it's hard to replicate that.
And we particularly like to increase those allocations at times when preferred shares are really cheap, when they trade at say 20% discount of power or more which is what we saw back in the fall. That is when they are particularly attractive but the longer timeframe goes, the more attractive common shares are.
>> What are your guests thoughts on fixed rate/rate reset preferred shares for the long term?
>> Right, for the long term, it sort of goes back to some of the comments I was making earlier. Rate resets are probably in a better position than floaters where you have to ride the interest rate cycle up and down and I think they are in a better position than perpetual because let's say we get stuck in an inflationary environment.
It's not bad inflation, not five or 10% like the 1970s that maybe it's 3% for longer than people would be comfortable with.
In that environment, perpetual dividend is fixed, it just doesn't change, where is rate resets, particularly those really low reset spreads that may be reset in 2019 or 2020 last, they will reset to much higher dividends in 2024 and 2025.
Those are the parts of the market that we would be more interested in.
>> That makes sense.
Okay, this question is on Brookfield office properties. Do you see any credit risk for Brookfield office properties preferreds in light of the current office vacancy rates? There yield was up near 12%.
>> Yeah, it's a good question. It's one that we get from our clients for sure.
And I have to say that there is credit risk with Brookfield property and that is why you are getting paid such a significant yield.
>> What is driving the credit risk?
>> It's their exposure to the office market and it's such a big part of what they do obviously that the SNP, they actually downgraded their preferred shares to P4 high which is a little bit below investment grade in recognition of some of the trends they are seeing in the fundamentals of the companies. The one that we have noticed is that if you look at their non-core office portfolio in the US, occupation there has fallen and it's a good example of there is hair on the story and credit risk. The thing that gives us some comfort is that if you look at their core office portfolio, occupancy there is 95%.
They have a lot of trophy assets in big cities like Toronto, New York and London so we think Brookfield offices is going to muddle through this tricky environment and management does have a good track record over the long term so we think you're getting paid to take the risk but it is risky.
>> Okay, we will get back to your questions for James Hunter on preferred shares in just a moment.
As always, make sure you do your own research before making any investment decisions.
and a reminder that unit touch with us at any time.
>> Do you have a question about investing or what's driving the markets?
Our guests are eager to hear what's on your mind, so send us your questions.
There are two ways you can get in touch with us.
You can send us an email anytime at moneytalklive@td.com or you can use the question box right below the screen here on WebBroker. Just write in your question and hit send.
We'll see if one of our guests can get you the answer right here at MoneyTalk Live.
[music] >> We are having a look at TD's Advanced Dashboard, platform designed for active traders available through TD Direct Investing. We are looking at the map function which gives you a view of the market movers on the TSX 60 by Price and volume.
We will take a look at the energy stocks in the top left-hand side of the screen.
We are seeing Cameco, a Saskatchewan-based uranium company, it is, we are seeing red on the screen. The company lost revenue, it fell in the first quarter, so we are seeing some selling their. Also basic material stocks in the bottom left corner, seeing some weakness in the gold names, Kinross Gold, Barrick Gold, also seeing some selling activity as well.
Taking a look at the top right corner, seeing some strength there and some of the financials.
Let's take a look at the S&P 100.
We will take a look at these cyclical consumer sector in the bottom there. Has low, of course, is taking of quite a lot of real estate there. It's in the red. We are seeing some pullback in its share price after the company saw big gains on Monday. The EV maker said that local Chinese office authorities removed restrictions on its car so it had big gains on Monday and perhaps harassing some pullback today. Also seeing some weakness and other car companies such as GM, Ford, seeing some red there.
If we look at the top rate, healthcare, Eli Lilly reported strong results, it's up more than 5% today. Also strong earnings from 3M as well.
It is up over 3% on some strong results.
All right, we are back taking a look at the next question here. This is about Algonquin Power. Your thoughts on Algonquin class a preferred shares?
>> Interesting question. Algonquin Power has some good utility assets. They are pretty diversified across many jurisdictions across North America and those utility assets have some value. I would say that their founding CEO and CFO, they left the company a number of years ago. They had an excellent run and moved on or retired and the new management team has had to adjust the company to this higher interest rate world we live in and to be honest, it's a tough adjustment because they have a little bit more leverage than they probably should and so we think there's little risk around their preferred shares.
It is probably another example of a company where you're getting paid reasonably well to take that risk but it's probably another name, another name that is a credit risk where you need to be careful.
>> We will move to the next question on rate resets. This seems to be a popular question. Rate reset preferred shares are resetting run of 6.5%.
Are they okay for a nonregistered account?
>> Yeah, so where an individual would want to hold preferred shares, it sort of depends on their individual financial circumstances and situation that I can't give specific advice on but I would say that generally, if you are paying tax here in Ontario and you are in a lower tax bracket, holding a preferred share in a nonregistered account is usually a good place to have it and that's because you get the tax credits and they are very advantageous. Coming at it from the other perspective, if you are in a very high tax bracket, collecting that six, seven, 8% yield, that can be really good for a tax-free savings account but it depends on the individual circumstances.
>> Okay, that's all the time we have of your questions. Before we go, quick reminder about the general outlook for preferred shares right now.
>> Yeah, so the outlook we have on preferred shares is still positive. It's been a fantastic run in the last six months. We have come very meaningfully off the bottom by about 20% but you still gotta yield about 5%, we still think there is a 5% capital gains opportunity to get back to those longer-term averages and you got a catalyst or two in play which is the clarity on the tax status and you got the bank's redeeming preferred shares again so I think that's going to continue to lift the markets slowly and steadily over the next 12 months.
>> Great conversation. Thanks for joining us, James.
>> My pleasure.
>> Our thanks to James Hunter, VP and Portfolio manager with TD Asset Management.
As always, make sure you do your own research before making any investment decisions.
and Stadium. On one statio, Andriy Yastreb, VP, portfolio research at TD Asset Management will be our Guest taking your questions about energy stocks.
And a reminder that you can get a head start.
Just email MoneyTalkLive@TD.com.
That's all for the show today. Take care.
We will see you tomorrow.
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