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[theme music] >> Hello, I'm Greg Bonnell. 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 are going to discuss whether the environment for Canadian dividend payers is improving. TD Asset Management's Jennifer Nowski joins us.
MoneyTalk's Anthony Okolie is going to have a look at a new TD Economics report on the head when facing the housing market, in particular the condo world. In today's web broker education segment, Ryan Massad will show us how you can find dividend paying stocks on the platform.
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 we get to all that and our guest of the day, let's get you an update on the markets.
We will start here at home with the TSX Composite Index. Right now, we are down a modest 36 points, about a fit of a percent.
Stocks have struggled a bit so far to start the month of September. Yesterday was a calmer day, little more pressure now on Bay Street and Wall Street. Barrick Gold, the last time I checked, it was mostly to the upside.
I want to see if it's hanging in there. At $26.37, you're a little shy of a full percent. Also noticed, we can talk about the dividend payers later in the show, some of the telecoms, day by day, they are not big gains but they have been on the move. Tell us today at $22.79, up about 1.5%, building on recent gains.
South of the border, jobs Friday is tomorrow, we had private payrolls today.
They are still adding positions in the states but the pace is slowing down. It raises concerns like we had at the beginning of August about the state of the US economy. Today we are down 34 points on the S&P 500, a little more than half a percent.
The tech heavy NASDAQ is still down but they are faring a bit better than the broader market the last time I checked, just down 1/10 of a percent. Hewlett Packard Enterprises, this is strictly a story about them. The margins on their AI server business disappointing in the order. HPE is down a little more than 6%.
And that's your market update.
With interest rates trending lower, some investors may be turning their attention to other parts of the market BioNTech, including some Canadian dividend payers.
Joining us now to discuss is Jennifer Nowski, VP, Dir. and portfolio manager with TD Asset Management. Welcome back to the program.
>> It's good to be here.
>> As the poets once said, the times are changing. We went through a high interest rate environment, we have seen borrowing costs beginning to ease particularly in this country and in the bond market. What does that mean for some of these dividend payers?
>> With bond yields declining, that creates a more supportive backdrop for some of the dividend paying equities in the sense of improved fundamentals but also potentially better funds flow.
Looking at the fundamental side, lower interest rates result in lower interest expenses for the company. It also means investors start applying a lower discount rate to the stocks. It leads to potentially improved valuations. Looking at the funds flow side, Canadians have been seeing GIC rates for example that they haven't seen in many, many years. So those are very attractive. Now that they might be coming down, investors who are income oriented might take another look at some of the higher dividend yielding equities. If you look at sectors like utilities, REITs, communication services, financials, pipelines, you can find dividend yields in the range of 3 to 5% plus depending on the name.
As a result of these lower bond yields, we have seen a pickup in the share prices for some of the sectors over the course of the summer.
>> These have been interesting moves over the course of the summer. We talk about dividend payers, some of the biggest names on the Canadian market, those include the Canadian banks. We have just been through another bank earnings season.
What's the take away?
>> The banks all reported over the past week or so or two. Generally, their results were for steady operational results as well as some early signs that may be the banks are nearing the end of the provision for credit losses normalizing. So starting with the positive side, it was a good quarter operationally, pretax, pre-ProVision growth was positive and that's as the banks To better control over their expense base which was challenged a little more than a year ago.
A lot of that was positive. As well, the core Canadian PNC banking division performed well with loan growth up in low mid single digits and stable.
Lastly, the banks remained well-capitalized. Their common equity tier 1 ratios are around 13%, so they don't need to raise as much capital and they have turned off the discounts they used to offer on their dividend reinvestment plan's as well some banks are buying back shares.
The thing investors have been watching has been this normalization in the provision for credit losses. It was at low levels a year or two ago and it was normalizing as expected. The challenge with this is that it does way on total EPS growth.
This quarter, there were variations across a group in terms of PCL's and there still could be some lumpiness. However, there were early signs that it's starting to flatten out so that something investors will continue to watch. What will drive details going forward? The rate environment is certainly one.
With the Bank of Canada lowering rates, they takes pressure off of consumers and the employment rate is remain somewhat stable.
>> That's a very key part of the Canadian market, the financials, the banks.
The energy trade is important. Let's start with the actual price of oil. If someone has been tracking it through the summer, it's been pretty choppy.
>> Yeah, it has kind of pulled back a bit recently. Really, that's driven by two things. One is demand coming in a bit lighter but the other remains focused on supply and what OPEC+ is doing. Starting first on the demand side of the equation, this year is shaping up to be a more normal year in terms of demand. There's been a lot of disruptions the past few years due to the pandemic, the impact that had on transportation. This year, oil demand growth is resuming its more normal correlation with global GDP growth. The main source of demand growth is not OECD countries, particularly Asia, China, and India.
That's where maybe we are seeing things come up short of expectations, Chinese demand struggling in light of slower economic growth there. Turning to the supply side, the focus really is on OPEC+.
There is some supply growth outside of OPEC but within OPEC, they have a fair amount of spare capacity and so the question for the market is what they will do with this. Earlier in the spring, they indicated they were looking to bring some of the spare capacity back onto the market. However, they gave themselves a lot of outs in terms of it depends if the market needs it.
Now, given that demand appears to be coming in weaker, there were more questions about what they were going to do. Some early reports today may be that they might adjust these plans but it's something to continue to watch because OPEC+ discipline remains critical for supporting balanced oil market.
>> A lot of powerful global forces MoneyTalk with oil trade. Taking it back home to some of the Canadian oil sands companies, we had results from them over the summer. What did they look like?
>> The trend with the Canadian oil sands players continues to be financial discipline.
They spent the last few years really controlling their Expenses, lowering their debt levels significantly, as well as being more disciplined about returning that cash to shareholders.
So even if oil or W BTI is in the low 70s, the Canadian oil sands stocks have a free cash flow yield of around the high single digits what's is still very attractive and now that they have hit these debt targets, there returning some to all of that to shareholders in the form of dividends and buybacks. The other form to hide it with them especially coming out of the quarter and as we look forward as the continued focus on lowered operating costs.
Opex came in fairly well this quarter and they benefited from several factors. Going forward, there is still a continued focus on driving these operating costs per barrel lower. Part of it will come from a bit of volume growth but it's also real operational improvements in terms of how they are managing their maintenance and turnarounds, the productivity of their fleet, lowering energy consumption and things like that so I think it's just a good sense that these companies continue to maintain their focus on financial discipline.
>> The product moves through pipelines, pipelines are interesting. In the energy basket, people think about utilities.
Let's talk about pipelines and utilities.
They are considered stable businesses.
What's the trend here?
>> Their earnings remained stable as these businesses are highly contracted and regulated.
The interesting thing to look out for going forward is there are opportunities to capitalize on US power demand growth.
US power demand has been roughly flat the past decade. However, it's now expected to be, to start growing due to the increasing demand from electrification, AI and data centres, as well as nearshoring.
For Canadian domicile pipelines and utilities, some of them have actually fairly sizable US operations so they are exposed to this trend. On the utility side, they benefit from growing demand in their territories as well as transmission generation opportunities.
On the gas side, the power demand is going to be, need to be met from all sorts of sources, including gas renewables and these companies have renewable generation divisions, they also will be able to supply those potentially new gas plants with gas lines. For the gas pipelines, the other big growth area is LNG and that's what's changing more in the near term as a driver of their growth.
The caveat to all this is that it's still early days.
It will still take time to play out. Some of these companies are quite large so although they are directionally positive, it is more marginal but something we are watching for in this sector.
>> Fascinating stuff to consider their about the Canadian market.
We are going to get your questions about Canadian dividend and commodity stocks were Jennifer Nowski 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.
Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading.
Activity in the Toronto real estate market remains sluggish despite the Bank of Canada embarking on a rate cutting cycle back in June.
The latest numbers from the region's real estate board showing the number of homes changing hands was down a little more than 5% year-over-year, while benchmark on prices were down 4.6% year-over-year.
The August numbers, that's what we are talking about here, they captured two rate cuts from the Bank of Canada.
The Toronto regional real estate board since yesterday's cut and further dissipated easing should bring buyers off the sidelines as we near the end of the year. Ford Motor Company says demand for trucks and hybrid vehicles drove more than 13% jump in US sales last month. While the all electric F150 lightning pickup enjoyed strong sales growth, for its hybrid offerings saw a 50% jump compared to the same time last year.
That said, internal combustion engines still make up more than 80% of Ford's sales. Several big automakers, including Ford, have slowed or redirected investment in all electric vehicles to meet shifting consumer demand.
We do have a multibillion dollar deal in the US telecom space today. Verizon says it's buying frontier Communications in an all cash transaction valued at $20 billion.
This deal is aimed at Verizon competing against the likes of AT&T in the broadband space. Frontier, down about 9%. The shares had surged almost 38% yesterday on rumours about a deal but we have a saying in the markets: by the rumour, sell the news.
Perhaps that's what's going on here. Quick check on the markets. We will start on Bay Street with the TSX Composite Index.
Bit of a bumpy start to the month of September. Just a couple of days and, three days I believe that we are in for the trading month. 35 points to the downside for the TSX, a little less than 1/5 of a percent. South of the border, the S&P 500, we had some private payroll data today ahead of jobs Friday, the all important jobs Friday, that's tomorrow on both sides of the border. In the states they are still adding positions according to the report from ADP, just not at the place that they were before. So concerns about the US economy. We are down 29 points on the S&P 500, about half a percent.
We are back now a Jennifer Nowski from TD Asset Management, taking your questions about Canadian dividend and commodity stocks.
First one off the top here, comments on the telcos? They have lagged this year.
What's going on?
>> If you look at the Canadian telecom stocks, some of the dividend yields are near historical highs in the stock prices have been under a bit of pressure this year and that's largely I would say off the back of intense wireless competition.
There is a lot of change in the industry.
If you think over the past year or so with Rogers acquiring Shaw and Quebecor acquiring freedom, so this has pressured revenues and growth has been low to negligible in the last quarter.
Cost control is going to start extending to capital expenditures as they try to keep a lid on those and support their free cash flow.
The other key thing is leverage in the sector. The companies are looking to lower leverage. That will take time and one thing that could potentially accelerate this is massive sales. I think the market is tuned into what the competitive activity is in the sector and if that starts to abate, that would be positive.
>> You said for fundamental reasons, the sector was under pressure because some people, you have a superficial view saying, interest rates are high, telcos don't do well, interest rates come down, telcos do better, but there are some things that they need to be working through on a fundamental basis.
>> In addition to the macro backdrop, you have to overlay the company or industry specifics and those can change over time.
>> Interesting things on the telcos there.
Someone wants to know, what has been driving life insurance stocks?
>> The Canadian lifeco stock prices have been doing fairly well. The results have been solid. They've been generating, if you look at the past year or so, core EPS growth is roughly in line with their expectations. Performance has been supported by the higher rate environment which helps investment income as well as demand for insurance products. They are very well capitalized and that has allowed them to buy back shares as well as could potentially allow for some M and a. Over the long run, to growth areas for them are in Asia and wealth. If we think about risks in the short term, you have to consider potentially for that Asian growth what macroeconomic conditions are in Asia and all the asset management side, fund flows can be lumpy or volatile so we have to look at what the markets doing and what their competitive positioning is in the markets.
>> After seeing rates elevated for so long, we are getting rates from the Bank of Canada.
The insurance companies are also rate sensitive.
>> As I mentioned, in terms of investment income, higher rates positive, lower rates might be a headwind. Others have alternative assets like real estate or commodities that can be supported by the lower interest rate environment.
>> Look deeper into that story again then just the rates being this for this kind of sector, there are always details under the hood. We have a question about gold. Gold has been on a tear this year, what is driving that?
>> Gold is hanging around 2500 today, it's up about 20% year to date so it's been a strong year.
If you look at gold over the past year or so, the first leg of the rally I would say was driven by really strong central bank demand driven by this push away from the US dollar to diversified portfolios.
This summer it was back to that rate story. With US 10 year real yields following, that supports demand for gold and we have seen some improvement in investment demand for gold with flows into the physical gold ETF's turning positive.
What could be kind of a headwind for gold?
Higher gold prices make it more expensive for consumers so maybe jewelry demand could soften.
There has been some hesitation at higher prices from the Bank of China. They have pause there buying in the last couple of months. However, in a lower rate environment, that's generally a positive backdrop for gold.
>> As you said, we have seen that big run-up in the price of gold, we can bring it back home to talk about gold equities.
What's the outlook?
>> Gold equities that have broadly followed the gold price higher. The big issue for gold equities the past year was cost inflation.
Particularly in an environment with the gold price for a while wasn't doing a whole lot so their margins basically got squeezed.
Now we have better gold price but also the cost inflation is becoming more manageable, it's more back to normal levels and you do get the occasional comment about labour availability. A bit less pressure on the cost side is helpful.
When we are evaluating gold equities and especially the producers, we are always mindful of the operating risk. It's a challenging business so we are looking for companies that can meet their production targets as well as the geopolitical backdrop in the countries they operate where the decisions are on taxes and that sort of thing. If gold is at 2500, very healthy gold price for the producers and if you think about the senior producers, that would give them a free cash flow yield of around 4%, so helpful.
>> Interesting space to look into as well for our viewers in terms of those gold equities here in Canada.
As always, make sure you do your own research before making any investment decisions.
we are going to get back your questions for Jennifer Nowski on Canadian dividend and commodity stocks in just a moment's time.
And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com.
Now, let's get to our educational segment of the day.
We are talking about dividend stocks today.
If you're looking to find those, WebBroker crystals can help. Ryan Massad, Senior client education instructor with TD Direct Investing joint just now with more. Great to see you. Let's talk.
>> Let's jump into web broker because there's a lot of dividend information on web broker.
On the first screen, this is it generally the screen that opens up when you login.
If you are looking for dividends for items or assets that you own in your account, your gonna go to the bottom right corner and you're gonna see this little dividends counter here. If you click on there, if you have any dividends that, any dividends coming up in your account, you're going to see them here as the counter. You can backup one week or you can go forward one week to see if there are any coming. This is a great way to know if there's anything coming up in your account. If you are just going to look for dividends that are, for any stock, for example a specific one, you're going to go up to research and then under the investments and then stocks, so if we are looking at a stock, let's say we are looking at, let's put up one of these bank stocks, a good one as far as I know here, TD Bank, you're gonna get dividend information on the bottom right corner here under the fundamental section. You are going to get dividend yield, the annual dividend rate, the ex dividend date, the payment date of that upcoming dividend. So this shows us the information for a specific stock for dividends. Even more information, if we click on this fundamental item, we can see how this dividend will compare with either industry, the industry or a pure comparison. For example, in this case, we've got TD Bank.
If we scroll down and look at the dividend, how do the TD Bank dividends compare with the financial services industry, where do they rank?
If we want to get into more detail, we can click on pure comparison and see how TD Bank compares with regards to dividends to its peers, such as the World Bank, Nova Scotia, BMO, CIBC. It's a great way to look at specifics about a dividend on a specific stock here in web broker.
>> In that example, we had an idea of a stock we wanted to look at the information for. What if someone just want to go through the web broker and find out which stocks pay dividends?
>> That's a good question. Sometimes we don't have a stock in mind, we just have dividends on our mind. One way to do that, I will show you a couple of ways.
If we go into web broker, under the same research tab, this time we are going to go over to the column that says markets. We are going to go down to events.
If we then click on dividends as a tab, I want you to notice on the top right we have the Canadian flag chosen, we are going to see those that are going ex dividend today on September 5. I can enter in another date here. Again, rumour, the ex dividend date, is the date if you buy a stock and that you will be ex dividend without dividend.
So maybe look a little bit forward. You can look to see which stocks are paying dividends by date.
You can switch this over as well to US and see which ones in the US are doing that.
If you want even more detail other than just what's coming up, you might lose our screeners tool by clicking on research and then under the tools, go to screeners and then in this, go to screen, and then down here, as part of the criteria, I'm going to clear this all here so you can see, as part of the criteria, you're going to have a dividends call them. In that little menu, you got dividend yield, dividend growth rate, even dividend coverage that incorporates growth of earnings. I can click on one of them, and that's my criteria and then tell the screen are exactly what range I would like. It will then screen the markets, depending on which one you'd like, and then show us some results for these kind of dividends.
This is basically looking for criteria to find your dividends. Lots tools in web broker. I suggest people just jump in and start looking around at all this wonderful dividend info.
>> Great stuff as always.
Thanks for that.
>> My pleasure.
>> Ryan Massad, Senior client education instructor at TD Direct Investing. For more educational resources, you can check out the education Centre on web broker or use this QR code to navigate to TD Direct Investing's YouTube page where you will find more informative videos.
Before you get back your questions about Canadian dividend and commodity stocks for Jennifer Nowski, 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.
We are back with Jennifer Nowski, taking your questions about Canadian dividend and commodity stocks. This one just coming in.
What is your outlook for Fordist?
>> Fordist is a good example of some of the same as you are talking about in the beginning in terms of power demand and lower rates. Fordist is a Canadian domiciled utility. It has operations in Canada and the US. It's a very stable business as it is highly rate regulated.
They have modest growth opportunities over time in terms of growing their base, investing in new projects and they have indicated that they are seeing early signs of positive demand for power in some of their territories due to the growth of data centres in the states.
So overall, they tend to be kind of a mid-single digit grower with a similar level of dividend growth over time.
>> When I think of Fordist in the headlines, several years back, there were a lot of Canadian utilities shopping south of the border to pick up properties. Are we seeing much M&A in the space right now or potential for it?
>> I would say the biggest M&A deal and utilities was late last year when Enbridge, a pipeline, but they do have a utility division and they acquired three gas utilities in the United States. That deal is actually approaching close and Enbridge has fully funded it.
>> Interesting stuff on that space and Fordist. Someone wants to get your thoughts on IMO, the ticker for Imperial oil.
>> They have upstream assets producing predominantly from the Canadian oil sands as well as downstream refining and chemicals assets.
They highlight a lot of the themes I talked about at the beginning.
They have some modest upstream production growth. It's quite low but it's enough that it'll drive some improvement in costs.
They are also looking to lower their costs. They've another project coming online, a-- which is expected to have lower capex and carbon than some of the products they have had. On the downstream side, being integrated means diversified and it also means that not all divisions are performing at peak cycle. Margins are coming in so that's an area that could see a miss but Imperial has been very disciplined with their capital allocation with most of their free cash flow, almost all of it coming back to shareholders in the form of dividends and buybacks.
>> I wanted to ask you about that. When we talk about the integrated plays, upstream operations, downstream, what are the benefits but also the risks? Someone could be screening through names and be saying, what's happening here?
>> If you're thinking about the price of oil, if you want the purest exposure to it, it comes from what we call oil and gas ENP's. They only produce oil, gas or some combination of both. They are highly exposed to changes in the oil price. An integrated player has upstream production as well as downstream facilities.
The hedge there is that typically if oil prices are lower, you are upstream that will probably be suffering but your downstream I be doing better because oil is hidden and put into your downstream margin. That's where when you look at the typical share price performance of the oil ENP versus an integrated player, be it Canadian or global players like Exxon or Shell, the integrated's tend to have lower volatility or lower beta to the price of oil then and ENP.
>> Great breakdown on that space. Let's take another question from the audience. A different part of the market. What is the outlook for potash stocks and fertilizers?
>> Fertilizer prices have really kind of, off the highs that they saw post-Russian invasion of Ukraine and the sanctions on Belarus. However, they are starting to find some balance now and if we were talking about potash specifically, potash prices have come off. I would say Russia and Belarus appear to have largely replaced their tongues in the market as well as supply from countries like Leo's.
However, inventory and the channel has been destocked and now demand appears to be stabilizing or perhaps picking up a bit into the fall.
The thing that investors watch for, longer-term potash is BHP's dance in mind which is being built will come online in 2026 or so. The counterbalance to that potentially is that demand for potash will be higher in the future.
>> When you are looking at names like fertilizers, potash, are you someone who has a thesis about agricultural demand longer-term, what's happening in that part of the market?
>> Agricultural demand, in a world of a growing population and population becoming wealthier, there's long run secular growth for agricultural products.
Crop yield is very weather dependent, that's one thing. But potash and other fertilizer, you have to overlay the underlying crop demand with the actual supply of those specific fertilizers that we talked about the outlook for potash in nitrogen, for example. The supplies influenced by natural gas with the producer being Europe. Gas prices there have come down but you still see exporters like China restricting supply, sometimes gas shortages, see you have to overlay the individual commodity fundamentals with that view on the agricultural demand.
>> The next question is about natural gas.
Can you guess please comment on her outlook for natural gas pricing?
>> North American natural gas, which is probably what most people are looking at, has been fairly weak this year. It's down around two dollars now and that's off the back of a fairly warm winter in North America as well supply, although there has been some production elements, it has remained fairly robust so storage levels are kind of above average rate now. I think I'll look for natural gas still really influenced by that elegy demand growth so there are a number of projects coming online in the states over the course of the next year that'll increase demand and later of course we have Ellen to Canada as well.
Tying back to what we were talking about in terms of power demand, natural gas is potentially a solution and source of power, natural gas has also benefited from coal to gas switching. That's an additional source of demand. Granted in terms of the outlook for US power, it's more longer-term and the magnitude is more uncertain where is with LNG, there is a very clear case of which projects are being built and when they should come online and how much gas they need.
Now, the risk to that is natural gas in North America is fairly prolific so no matter how much is produced, with producer discipline, as well the need to get that gas to markets that need it.
>> We are going to get back to your questions for Jennifer Nowski on Canadian dividend and commodity stocks in just a moment's time.
As always, make sure you do your own research before making any investment decisions.
And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com.
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.
Despite the Bank of Canada embarking on a rate cutting path, we had June and July, we just got August, home sales in Canada's biggest markets remain subdued. Anthony Okolie digs into a new TD Economics report about the oversupply of the condo market here in the greater Toronto area.
>> We will start with interest rates.
After three straight cuts, TD Economics is calling for two more cuts this year.
Eventually, they see the overnight rate at 2.5% by the end of 2025.
More drops are likely to come, according to TD economics. So far, GTA home sales have been quiet.
TD Economics says that sales growth should turn stronger as a steep drop in yields get more reflected in mortgage rates going forward. However, TD Economics believes that the average retail price growth in GTA will trail by a big margin and there are couple of reasons for that. One, poor affordability in Toronto. The average home price, we recently got the numbers from the Toronto Regional Real Estate Board where the average home price in the GTA in August was just over $1 million. A key reason for the weakness in the GTA home sales has been a glut of condos available to buy in the GTA. It's hard to miss the glut of condos when you look up at the skyline and those condos that are under construction as well. For context, the sales to active listings ratio, a measure of supply and demand, supply demand imbalance in the housing market, right now, the sales to active listing ratios is 60% below its long-term average in the second quarter of this year.
Basically this implies there is too little demand and too much supply in the GTA condo market.
This comes as condo listings have skyrocketed this past year. They are 30% higher than normal after adjusting for the population growth here in Canada.
There is a reason why we are seeing so much supply.
First, I wanted to show you this chart.
You can see that there has been a big wave of condos this year hitting the market in 2024. You can see it has far exceeded levels we saw back in 2021, 2022 and 2023.
Of course, as of July, the condo resales in the GTA is roughly 25% below pre-pandemic levels. There are other reasons for the subdued market here in the GTA, weak sales activity not soaking up the inventory glut fast enough this year.
Additionally, federal government policies to curb population growth, that's going to have an impact on rent. That is spooking some investors.
There are a few investors out there who are currently in the red, they are seeing negative cash flows and so it could be because of dropping rents in Toronto and so forth and so as a result they are listing more properties adding to the glut of condos in the market. Looking ahead, TD Economics believes that condo sales will rise in 2025 and a big reason why is Paul yields will drive mortgage rates lower and that should unlock pent-up demand in the market.
However, the elevated rates into 2025, they believe that will be a strain on affordability in the GTA. With, supply relatively high, it's going to take months to soak up that glut of condo inventory here.
TD Economics says that the benchmark condo prices could post mid to single high digit, sorry, single digit declines from Q4 this year to the early part of next year. As a result, they believe that home prices will record below average gains in 2024 and into 2025.
>> Interesting forecasts there. What do you think the risks are?
>> They see upside and downside risk.
Let's start with the downside. There is the potential that the softer job market plus the near record condo units under construction are completed, that could cool prices more than expected in the coming months. On the upside, there is the possibility that sellers are not happy with the week markets and they could delist their properties and that could tighten markets faster than they expect.
>> Interesting stuff.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
Now for an update on the markets.
We are having a look at TD's Advanced Dashboard, a platform designed for active traders available through TD Direct Investing.
This is the heat map function, a nice view of the market movers on the TSX 60 by price and by volume. Let's go through it and see what's moving today. I just wanted to check the topline number of the TSX Composite Index, we are still modestly in negative territory. Beneath the surface, we have a bid into some of the mining stocks, there is Barrick Gold, ABS, Kinross, First Quantum. They've got modest upside as well. It's a mixed picture in the financials as well as the energy names.
Enbridge is 1/4 of a percent, Suncor down almost a full percent. South of the border, tomorrow is jobs Friday here in Canada and the United States. We got the ADP private payrolls today. The US economy is still adding jobs according to the report, just not at the pace it was before. It does raise some concerns in the market about the state of the US economy and where it might be headed. We are awaiting the Fed later this month. Widely expected they will begin cutting rates and start catching up to the Bank of Canada. A bit of pressure on the topline S&P 500. As we dive into the SP1, it's a mixed picture. Nvidia hanging in there, up about 1%. It had a pretty major pullback to start the trading month on Tuesday. Has left about 5% but through the financials and some cyclical names we are seeing pressure to the downside.
We are back now a Jennifer Nowski from TD Asset Management, let's get back to some questions for you. Someone wants to know if this is a good time to look at CNQ?
>> CNQ, one of our larger Canadian oil and gas companies, they are, they operate across the upstream area. They have light oil, heavy oil, synthetic oil as well as natural gas. They have been executing fairly well operationally lately as well they have been following that mantra of financial disciplines they have lowered their net debt levels and now that they have had a specific target, they are paying at 100% of their free cash flow in the form of share buybacks and dividends so again, very similar trends there that we have seen in the industry.
>> What would be the risks here? Somebody trying to figure out where oil goes from here.
>> The stock prices the oil and gas companies do bounce around with the price of oil so that's one risk.
There is always operational risks with these companies as well in terms of any production hiccups and that sort of thing.
>> A question getting over to the utilities side. What's your take on Enbridge?
>> Enbridge is a major pipeline and gas company as well as a utility and renewables division. Overall, the majority of its earnings are stable because they are regulated or contracted.
As we touched on at the beginning, they are seeing growth in projects they have in areas connecting to Gulf Coast US LNG facilities as well as growing their utility rate base. One major thing with Enbridge for the past year was this acquisition of three utilities in the US.
Just this past quarter, they indicated that they are fully funded on them so the market will be watching to see if the acquisition closes before the end of the year.
>> That was Enbridge. We are going to squeeze in one more question. Different than anything we have talked about for the entire program. The groceries, how are they looking?
>> The grocers have had a couple of solid years, their same-store sales growth and earnings have benefited partly from inflationary environment that helps your topline growth as well as the boost to population of the Canadian market which is helpful for a mature industry. They have been fairly disciplined on managing their cost base, so margins have held up well.
They also do have some pharmacy divisions which benefit from the aging population, growth in the specialty market as well as their ability to offer more services. One trend across the consumer space in Canada and the US that we have been seeing has been the pressure on the consumer, particularly at the low end.
For the grocers, that means better performance on their discount banners. The risk to groceries going forward, it's a mature market, same-store sales growth has been robust, that could come down a bit if we are in a lower inflationary environment for example as well valuations have expanded so the upside might be more limited.
>> Jennifer, always great to have you and get your insight. Thanks for joining us.
>> Thank you.
>> Our thanks to Jennifer Nowski, VP, Dir.
and portfolio manager at TD Asset Management.
As always, make sure you do your own research before making any investment decisions.
if we did not have time to get your question today, we will aim to put it into future shows. Stay tuned. We will be back tomorrow, it's jobs Friday on both sides of the border. We will be breaking all that down for you and what it could mean for interest rates going forward. On Monday, David Sekera, chief US market strategist with Morningstar Research will be our guest. He wants to take your questions about US equities.
A reminder that you get a head start with those questions. Just email MoneyTalkLive@TD.com.
That's all the time we have for the show today. Thanks for watching.
We will see you tomorrow.
[theme 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 are going to discuss whether the environment for Canadian dividend payers is improving. TD Asset Management's Jennifer Nowski joins us.
MoneyTalk's Anthony Okolie is going to have a look at a new TD Economics report on the head when facing the housing market, in particular the condo world. In today's web broker education segment, Ryan Massad will show us how you can find dividend paying stocks on the platform.
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 we get to all that and our guest of the day, let's get you an update on the markets.
We will start here at home with the TSX Composite Index. Right now, we are down a modest 36 points, about a fit of a percent.
Stocks have struggled a bit so far to start the month of September. Yesterday was a calmer day, little more pressure now on Bay Street and Wall Street. Barrick Gold, the last time I checked, it was mostly to the upside.
I want to see if it's hanging in there. At $26.37, you're a little shy of a full percent. Also noticed, we can talk about the dividend payers later in the show, some of the telecoms, day by day, they are not big gains but they have been on the move. Tell us today at $22.79, up about 1.5%, building on recent gains.
South of the border, jobs Friday is tomorrow, we had private payrolls today.
They are still adding positions in the states but the pace is slowing down. It raises concerns like we had at the beginning of August about the state of the US economy. Today we are down 34 points on the S&P 500, a little more than half a percent.
The tech heavy NASDAQ is still down but they are faring a bit better than the broader market the last time I checked, just down 1/10 of a percent. Hewlett Packard Enterprises, this is strictly a story about them. The margins on their AI server business disappointing in the order. HPE is down a little more than 6%.
And that's your market update.
With interest rates trending lower, some investors may be turning their attention to other parts of the market BioNTech, including some Canadian dividend payers.
Joining us now to discuss is Jennifer Nowski, VP, Dir. and portfolio manager with TD Asset Management. Welcome back to the program.
>> It's good to be here.
>> As the poets once said, the times are changing. We went through a high interest rate environment, we have seen borrowing costs beginning to ease particularly in this country and in the bond market. What does that mean for some of these dividend payers?
>> With bond yields declining, that creates a more supportive backdrop for some of the dividend paying equities in the sense of improved fundamentals but also potentially better funds flow.
Looking at the fundamental side, lower interest rates result in lower interest expenses for the company. It also means investors start applying a lower discount rate to the stocks. It leads to potentially improved valuations. Looking at the funds flow side, Canadians have been seeing GIC rates for example that they haven't seen in many, many years. So those are very attractive. Now that they might be coming down, investors who are income oriented might take another look at some of the higher dividend yielding equities. If you look at sectors like utilities, REITs, communication services, financials, pipelines, you can find dividend yields in the range of 3 to 5% plus depending on the name.
As a result of these lower bond yields, we have seen a pickup in the share prices for some of the sectors over the course of the summer.
>> These have been interesting moves over the course of the summer. We talk about dividend payers, some of the biggest names on the Canadian market, those include the Canadian banks. We have just been through another bank earnings season.
What's the take away?
>> The banks all reported over the past week or so or two. Generally, their results were for steady operational results as well as some early signs that may be the banks are nearing the end of the provision for credit losses normalizing. So starting with the positive side, it was a good quarter operationally, pretax, pre-ProVision growth was positive and that's as the banks To better control over their expense base which was challenged a little more than a year ago.
A lot of that was positive. As well, the core Canadian PNC banking division performed well with loan growth up in low mid single digits and stable.
Lastly, the banks remained well-capitalized. Their common equity tier 1 ratios are around 13%, so they don't need to raise as much capital and they have turned off the discounts they used to offer on their dividend reinvestment plan's as well some banks are buying back shares.
The thing investors have been watching has been this normalization in the provision for credit losses. It was at low levels a year or two ago and it was normalizing as expected. The challenge with this is that it does way on total EPS growth.
This quarter, there were variations across a group in terms of PCL's and there still could be some lumpiness. However, there were early signs that it's starting to flatten out so that something investors will continue to watch. What will drive details going forward? The rate environment is certainly one.
With the Bank of Canada lowering rates, they takes pressure off of consumers and the employment rate is remain somewhat stable.
>> That's a very key part of the Canadian market, the financials, the banks.
The energy trade is important. Let's start with the actual price of oil. If someone has been tracking it through the summer, it's been pretty choppy.
>> Yeah, it has kind of pulled back a bit recently. Really, that's driven by two things. One is demand coming in a bit lighter but the other remains focused on supply and what OPEC+ is doing. Starting first on the demand side of the equation, this year is shaping up to be a more normal year in terms of demand. There's been a lot of disruptions the past few years due to the pandemic, the impact that had on transportation. This year, oil demand growth is resuming its more normal correlation with global GDP growth. The main source of demand growth is not OECD countries, particularly Asia, China, and India.
That's where maybe we are seeing things come up short of expectations, Chinese demand struggling in light of slower economic growth there. Turning to the supply side, the focus really is on OPEC+.
There is some supply growth outside of OPEC but within OPEC, they have a fair amount of spare capacity and so the question for the market is what they will do with this. Earlier in the spring, they indicated they were looking to bring some of the spare capacity back onto the market. However, they gave themselves a lot of outs in terms of it depends if the market needs it.
Now, given that demand appears to be coming in weaker, there were more questions about what they were going to do. Some early reports today may be that they might adjust these plans but it's something to continue to watch because OPEC+ discipline remains critical for supporting balanced oil market.
>> A lot of powerful global forces MoneyTalk with oil trade. Taking it back home to some of the Canadian oil sands companies, we had results from them over the summer. What did they look like?
>> The trend with the Canadian oil sands players continues to be financial discipline.
They spent the last few years really controlling their Expenses, lowering their debt levels significantly, as well as being more disciplined about returning that cash to shareholders.
So even if oil or W BTI is in the low 70s, the Canadian oil sands stocks have a free cash flow yield of around the high single digits what's is still very attractive and now that they have hit these debt targets, there returning some to all of that to shareholders in the form of dividends and buybacks. The other form to hide it with them especially coming out of the quarter and as we look forward as the continued focus on lowered operating costs.
Opex came in fairly well this quarter and they benefited from several factors. Going forward, there is still a continued focus on driving these operating costs per barrel lower. Part of it will come from a bit of volume growth but it's also real operational improvements in terms of how they are managing their maintenance and turnarounds, the productivity of their fleet, lowering energy consumption and things like that so I think it's just a good sense that these companies continue to maintain their focus on financial discipline.
>> The product moves through pipelines, pipelines are interesting. In the energy basket, people think about utilities.
Let's talk about pipelines and utilities.
They are considered stable businesses.
What's the trend here?
>> Their earnings remained stable as these businesses are highly contracted and regulated.
The interesting thing to look out for going forward is there are opportunities to capitalize on US power demand growth.
US power demand has been roughly flat the past decade. However, it's now expected to be, to start growing due to the increasing demand from electrification, AI and data centres, as well as nearshoring.
For Canadian domicile pipelines and utilities, some of them have actually fairly sizable US operations so they are exposed to this trend. On the utility side, they benefit from growing demand in their territories as well as transmission generation opportunities.
On the gas side, the power demand is going to be, need to be met from all sorts of sources, including gas renewables and these companies have renewable generation divisions, they also will be able to supply those potentially new gas plants with gas lines. For the gas pipelines, the other big growth area is LNG and that's what's changing more in the near term as a driver of their growth.
The caveat to all this is that it's still early days.
It will still take time to play out. Some of these companies are quite large so although they are directionally positive, it is more marginal but something we are watching for in this sector.
>> Fascinating stuff to consider their about the Canadian market.
We are going to get your questions about Canadian dividend and commodity stocks were Jennifer Nowski 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.
Right now, let's get you updated on the top stories in the world of business and take a look at how the markets are trading.
Activity in the Toronto real estate market remains sluggish despite the Bank of Canada embarking on a rate cutting cycle back in June.
The latest numbers from the region's real estate board showing the number of homes changing hands was down a little more than 5% year-over-year, while benchmark on prices were down 4.6% year-over-year.
The August numbers, that's what we are talking about here, they captured two rate cuts from the Bank of Canada.
The Toronto regional real estate board since yesterday's cut and further dissipated easing should bring buyers off the sidelines as we near the end of the year. Ford Motor Company says demand for trucks and hybrid vehicles drove more than 13% jump in US sales last month. While the all electric F150 lightning pickup enjoyed strong sales growth, for its hybrid offerings saw a 50% jump compared to the same time last year.
That said, internal combustion engines still make up more than 80% of Ford's sales. Several big automakers, including Ford, have slowed or redirected investment in all electric vehicles to meet shifting consumer demand.
We do have a multibillion dollar deal in the US telecom space today. Verizon says it's buying frontier Communications in an all cash transaction valued at $20 billion.
This deal is aimed at Verizon competing against the likes of AT&T in the broadband space. Frontier, down about 9%. The shares had surged almost 38% yesterday on rumours about a deal but we have a saying in the markets: by the rumour, sell the news.
Perhaps that's what's going on here. Quick check on the markets. We will start on Bay Street with the TSX Composite Index.
Bit of a bumpy start to the month of September. Just a couple of days and, three days I believe that we are in for the trading month. 35 points to the downside for the TSX, a little less than 1/5 of a percent. South of the border, the S&P 500, we had some private payroll data today ahead of jobs Friday, the all important jobs Friday, that's tomorrow on both sides of the border. In the states they are still adding positions according to the report from ADP, just not at the place that they were before. So concerns about the US economy. We are down 29 points on the S&P 500, about half a percent.
We are back now a Jennifer Nowski from TD Asset Management, taking your questions about Canadian dividend and commodity stocks.
First one off the top here, comments on the telcos? They have lagged this year.
What's going on?
>> If you look at the Canadian telecom stocks, some of the dividend yields are near historical highs in the stock prices have been under a bit of pressure this year and that's largely I would say off the back of intense wireless competition.
There is a lot of change in the industry.
If you think over the past year or so with Rogers acquiring Shaw and Quebecor acquiring freedom, so this has pressured revenues and growth has been low to negligible in the last quarter.
Cost control is going to start extending to capital expenditures as they try to keep a lid on those and support their free cash flow.
The other key thing is leverage in the sector. The companies are looking to lower leverage. That will take time and one thing that could potentially accelerate this is massive sales. I think the market is tuned into what the competitive activity is in the sector and if that starts to abate, that would be positive.
>> You said for fundamental reasons, the sector was under pressure because some people, you have a superficial view saying, interest rates are high, telcos don't do well, interest rates come down, telcos do better, but there are some things that they need to be working through on a fundamental basis.
>> In addition to the macro backdrop, you have to overlay the company or industry specifics and those can change over time.
>> Interesting things on the telcos there.
Someone wants to know, what has been driving life insurance stocks?
>> The Canadian lifeco stock prices have been doing fairly well. The results have been solid. They've been generating, if you look at the past year or so, core EPS growth is roughly in line with their expectations. Performance has been supported by the higher rate environment which helps investment income as well as demand for insurance products. They are very well capitalized and that has allowed them to buy back shares as well as could potentially allow for some M and a. Over the long run, to growth areas for them are in Asia and wealth. If we think about risks in the short term, you have to consider potentially for that Asian growth what macroeconomic conditions are in Asia and all the asset management side, fund flows can be lumpy or volatile so we have to look at what the markets doing and what their competitive positioning is in the markets.
>> After seeing rates elevated for so long, we are getting rates from the Bank of Canada.
The insurance companies are also rate sensitive.
>> As I mentioned, in terms of investment income, higher rates positive, lower rates might be a headwind. Others have alternative assets like real estate or commodities that can be supported by the lower interest rate environment.
>> Look deeper into that story again then just the rates being this for this kind of sector, there are always details under the hood. We have a question about gold. Gold has been on a tear this year, what is driving that?
>> Gold is hanging around 2500 today, it's up about 20% year to date so it's been a strong year.
If you look at gold over the past year or so, the first leg of the rally I would say was driven by really strong central bank demand driven by this push away from the US dollar to diversified portfolios.
This summer it was back to that rate story. With US 10 year real yields following, that supports demand for gold and we have seen some improvement in investment demand for gold with flows into the physical gold ETF's turning positive.
What could be kind of a headwind for gold?
Higher gold prices make it more expensive for consumers so maybe jewelry demand could soften.
There has been some hesitation at higher prices from the Bank of China. They have pause there buying in the last couple of months. However, in a lower rate environment, that's generally a positive backdrop for gold.
>> As you said, we have seen that big run-up in the price of gold, we can bring it back home to talk about gold equities.
What's the outlook?
>> Gold equities that have broadly followed the gold price higher. The big issue for gold equities the past year was cost inflation.
Particularly in an environment with the gold price for a while wasn't doing a whole lot so their margins basically got squeezed.
Now we have better gold price but also the cost inflation is becoming more manageable, it's more back to normal levels and you do get the occasional comment about labour availability. A bit less pressure on the cost side is helpful.
When we are evaluating gold equities and especially the producers, we are always mindful of the operating risk. It's a challenging business so we are looking for companies that can meet their production targets as well as the geopolitical backdrop in the countries they operate where the decisions are on taxes and that sort of thing. If gold is at 2500, very healthy gold price for the producers and if you think about the senior producers, that would give them a free cash flow yield of around 4%, so helpful.
>> Interesting space to look into as well for our viewers in terms of those gold equities here in Canada.
As always, make sure you do your own research before making any investment decisions.
we are going to get back your questions for Jennifer Nowski on Canadian dividend and commodity stocks in just a moment's time.
And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com.
Now, let's get to our educational segment of the day.
We are talking about dividend stocks today.
If you're looking to find those, WebBroker crystals can help. Ryan Massad, Senior client education instructor with TD Direct Investing joint just now with more. Great to see you. Let's talk.
>> Let's jump into web broker because there's a lot of dividend information on web broker.
On the first screen, this is it generally the screen that opens up when you login.
If you are looking for dividends for items or assets that you own in your account, your gonna go to the bottom right corner and you're gonna see this little dividends counter here. If you click on there, if you have any dividends that, any dividends coming up in your account, you're going to see them here as the counter. You can backup one week or you can go forward one week to see if there are any coming. This is a great way to know if there's anything coming up in your account. If you are just going to look for dividends that are, for any stock, for example a specific one, you're going to go up to research and then under the investments and then stocks, so if we are looking at a stock, let's say we are looking at, let's put up one of these bank stocks, a good one as far as I know here, TD Bank, you're gonna get dividend information on the bottom right corner here under the fundamental section. You are going to get dividend yield, the annual dividend rate, the ex dividend date, the payment date of that upcoming dividend. So this shows us the information for a specific stock for dividends. Even more information, if we click on this fundamental item, we can see how this dividend will compare with either industry, the industry or a pure comparison. For example, in this case, we've got TD Bank.
If we scroll down and look at the dividend, how do the TD Bank dividends compare with the financial services industry, where do they rank?
If we want to get into more detail, we can click on pure comparison and see how TD Bank compares with regards to dividends to its peers, such as the World Bank, Nova Scotia, BMO, CIBC. It's a great way to look at specifics about a dividend on a specific stock here in web broker.
>> In that example, we had an idea of a stock we wanted to look at the information for. What if someone just want to go through the web broker and find out which stocks pay dividends?
>> That's a good question. Sometimes we don't have a stock in mind, we just have dividends on our mind. One way to do that, I will show you a couple of ways.
If we go into web broker, under the same research tab, this time we are going to go over to the column that says markets. We are going to go down to events.
If we then click on dividends as a tab, I want you to notice on the top right we have the Canadian flag chosen, we are going to see those that are going ex dividend today on September 5. I can enter in another date here. Again, rumour, the ex dividend date, is the date if you buy a stock and that you will be ex dividend without dividend.
So maybe look a little bit forward. You can look to see which stocks are paying dividends by date.
You can switch this over as well to US and see which ones in the US are doing that.
If you want even more detail other than just what's coming up, you might lose our screeners tool by clicking on research and then under the tools, go to screeners and then in this, go to screen, and then down here, as part of the criteria, I'm going to clear this all here so you can see, as part of the criteria, you're going to have a dividends call them. In that little menu, you got dividend yield, dividend growth rate, even dividend coverage that incorporates growth of earnings. I can click on one of them, and that's my criteria and then tell the screen are exactly what range I would like. It will then screen the markets, depending on which one you'd like, and then show us some results for these kind of dividends.
This is basically looking for criteria to find your dividends. Lots tools in web broker. I suggest people just jump in and start looking around at all this wonderful dividend info.
>> Great stuff as always.
Thanks for that.
>> My pleasure.
>> Ryan Massad, Senior client education instructor at TD Direct Investing. For more educational resources, you can check out the education Centre on web broker or use this QR code to navigate to TD Direct Investing's YouTube page where you will find more informative videos.
Before you get back your questions about Canadian dividend and commodity stocks for Jennifer Nowski, 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.
We are back with Jennifer Nowski, taking your questions about Canadian dividend and commodity stocks. This one just coming in.
What is your outlook for Fordist?
>> Fordist is a good example of some of the same as you are talking about in the beginning in terms of power demand and lower rates. Fordist is a Canadian domiciled utility. It has operations in Canada and the US. It's a very stable business as it is highly rate regulated.
They have modest growth opportunities over time in terms of growing their base, investing in new projects and they have indicated that they are seeing early signs of positive demand for power in some of their territories due to the growth of data centres in the states.
So overall, they tend to be kind of a mid-single digit grower with a similar level of dividend growth over time.
>> When I think of Fordist in the headlines, several years back, there were a lot of Canadian utilities shopping south of the border to pick up properties. Are we seeing much M&A in the space right now or potential for it?
>> I would say the biggest M&A deal and utilities was late last year when Enbridge, a pipeline, but they do have a utility division and they acquired three gas utilities in the United States. That deal is actually approaching close and Enbridge has fully funded it.
>> Interesting stuff on that space and Fordist. Someone wants to get your thoughts on IMO, the ticker for Imperial oil.
>> They have upstream assets producing predominantly from the Canadian oil sands as well as downstream refining and chemicals assets.
They highlight a lot of the themes I talked about at the beginning.
They have some modest upstream production growth. It's quite low but it's enough that it'll drive some improvement in costs.
They are also looking to lower their costs. They've another project coming online, a-- which is expected to have lower capex and carbon than some of the products they have had. On the downstream side, being integrated means diversified and it also means that not all divisions are performing at peak cycle. Margins are coming in so that's an area that could see a miss but Imperial has been very disciplined with their capital allocation with most of their free cash flow, almost all of it coming back to shareholders in the form of dividends and buybacks.
>> I wanted to ask you about that. When we talk about the integrated plays, upstream operations, downstream, what are the benefits but also the risks? Someone could be screening through names and be saying, what's happening here?
>> If you're thinking about the price of oil, if you want the purest exposure to it, it comes from what we call oil and gas ENP's. They only produce oil, gas or some combination of both. They are highly exposed to changes in the oil price. An integrated player has upstream production as well as downstream facilities.
The hedge there is that typically if oil prices are lower, you are upstream that will probably be suffering but your downstream I be doing better because oil is hidden and put into your downstream margin. That's where when you look at the typical share price performance of the oil ENP versus an integrated player, be it Canadian or global players like Exxon or Shell, the integrated's tend to have lower volatility or lower beta to the price of oil then and ENP.
>> Great breakdown on that space. Let's take another question from the audience. A different part of the market. What is the outlook for potash stocks and fertilizers?
>> Fertilizer prices have really kind of, off the highs that they saw post-Russian invasion of Ukraine and the sanctions on Belarus. However, they are starting to find some balance now and if we were talking about potash specifically, potash prices have come off. I would say Russia and Belarus appear to have largely replaced their tongues in the market as well as supply from countries like Leo's.
However, inventory and the channel has been destocked and now demand appears to be stabilizing or perhaps picking up a bit into the fall.
The thing that investors watch for, longer-term potash is BHP's dance in mind which is being built will come online in 2026 or so. The counterbalance to that potentially is that demand for potash will be higher in the future.
>> When you are looking at names like fertilizers, potash, are you someone who has a thesis about agricultural demand longer-term, what's happening in that part of the market?
>> Agricultural demand, in a world of a growing population and population becoming wealthier, there's long run secular growth for agricultural products.
Crop yield is very weather dependent, that's one thing. But potash and other fertilizer, you have to overlay the underlying crop demand with the actual supply of those specific fertilizers that we talked about the outlook for potash in nitrogen, for example. The supplies influenced by natural gas with the producer being Europe. Gas prices there have come down but you still see exporters like China restricting supply, sometimes gas shortages, see you have to overlay the individual commodity fundamentals with that view on the agricultural demand.
>> The next question is about natural gas.
Can you guess please comment on her outlook for natural gas pricing?
>> North American natural gas, which is probably what most people are looking at, has been fairly weak this year. It's down around two dollars now and that's off the back of a fairly warm winter in North America as well supply, although there has been some production elements, it has remained fairly robust so storage levels are kind of above average rate now. I think I'll look for natural gas still really influenced by that elegy demand growth so there are a number of projects coming online in the states over the course of the next year that'll increase demand and later of course we have Ellen to Canada as well.
Tying back to what we were talking about in terms of power demand, natural gas is potentially a solution and source of power, natural gas has also benefited from coal to gas switching. That's an additional source of demand. Granted in terms of the outlook for US power, it's more longer-term and the magnitude is more uncertain where is with LNG, there is a very clear case of which projects are being built and when they should come online and how much gas they need.
Now, the risk to that is natural gas in North America is fairly prolific so no matter how much is produced, with producer discipline, as well the need to get that gas to markets that need it.
>> We are going to get back to your questions for Jennifer Nowski on Canadian dividend and commodity stocks in just a moment's time.
As always, make sure you do your own research before making any investment decisions.
And a reminder that you can get in touch with us any time. Just email moneytalklive@td.com.
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.
Despite the Bank of Canada embarking on a rate cutting path, we had June and July, we just got August, home sales in Canada's biggest markets remain subdued. Anthony Okolie digs into a new TD Economics report about the oversupply of the condo market here in the greater Toronto area.
>> We will start with interest rates.
After three straight cuts, TD Economics is calling for two more cuts this year.
Eventually, they see the overnight rate at 2.5% by the end of 2025.
More drops are likely to come, according to TD economics. So far, GTA home sales have been quiet.
TD Economics says that sales growth should turn stronger as a steep drop in yields get more reflected in mortgage rates going forward. However, TD Economics believes that the average retail price growth in GTA will trail by a big margin and there are couple of reasons for that. One, poor affordability in Toronto. The average home price, we recently got the numbers from the Toronto Regional Real Estate Board where the average home price in the GTA in August was just over $1 million. A key reason for the weakness in the GTA home sales has been a glut of condos available to buy in the GTA. It's hard to miss the glut of condos when you look up at the skyline and those condos that are under construction as well. For context, the sales to active listings ratio, a measure of supply and demand, supply demand imbalance in the housing market, right now, the sales to active listing ratios is 60% below its long-term average in the second quarter of this year.
Basically this implies there is too little demand and too much supply in the GTA condo market.
This comes as condo listings have skyrocketed this past year. They are 30% higher than normal after adjusting for the population growth here in Canada.
There is a reason why we are seeing so much supply.
First, I wanted to show you this chart.
You can see that there has been a big wave of condos this year hitting the market in 2024. You can see it has far exceeded levels we saw back in 2021, 2022 and 2023.
Of course, as of July, the condo resales in the GTA is roughly 25% below pre-pandemic levels. There are other reasons for the subdued market here in the GTA, weak sales activity not soaking up the inventory glut fast enough this year.
Additionally, federal government policies to curb population growth, that's going to have an impact on rent. That is spooking some investors.
There are a few investors out there who are currently in the red, they are seeing negative cash flows and so it could be because of dropping rents in Toronto and so forth and so as a result they are listing more properties adding to the glut of condos in the market. Looking ahead, TD Economics believes that condo sales will rise in 2025 and a big reason why is Paul yields will drive mortgage rates lower and that should unlock pent-up demand in the market.
However, the elevated rates into 2025, they believe that will be a strain on affordability in the GTA. With, supply relatively high, it's going to take months to soak up that glut of condo inventory here.
TD Economics says that the benchmark condo prices could post mid to single high digit, sorry, single digit declines from Q4 this year to the early part of next year. As a result, they believe that home prices will record below average gains in 2024 and into 2025.
>> Interesting forecasts there. What do you think the risks are?
>> They see upside and downside risk.
Let's start with the downside. There is the potential that the softer job market plus the near record condo units under construction are completed, that could cool prices more than expected in the coming months. On the upside, there is the possibility that sellers are not happy with the week markets and they could delist their properties and that could tighten markets faster than they expect.
>> Interesting stuff.
>> My pleasure.
>> MoneyTalk's Anthony Okolie.
Now for an update on the markets.
We are having a look at TD's Advanced Dashboard, a platform designed for active traders available through TD Direct Investing.
This is the heat map function, a nice view of the market movers on the TSX 60 by price and by volume. Let's go through it and see what's moving today. I just wanted to check the topline number of the TSX Composite Index, we are still modestly in negative territory. Beneath the surface, we have a bid into some of the mining stocks, there is Barrick Gold, ABS, Kinross, First Quantum. They've got modest upside as well. It's a mixed picture in the financials as well as the energy names.
Enbridge is 1/4 of a percent, Suncor down almost a full percent. South of the border, tomorrow is jobs Friday here in Canada and the United States. We got the ADP private payrolls today. The US economy is still adding jobs according to the report, just not at the pace it was before. It does raise some concerns in the market about the state of the US economy and where it might be headed. We are awaiting the Fed later this month. Widely expected they will begin cutting rates and start catching up to the Bank of Canada. A bit of pressure on the topline S&P 500. As we dive into the SP1, it's a mixed picture. Nvidia hanging in there, up about 1%. It had a pretty major pullback to start the trading month on Tuesday. Has left about 5% but through the financials and some cyclical names we are seeing pressure to the downside.
We are back now a Jennifer Nowski from TD Asset Management, let's get back to some questions for you. Someone wants to know if this is a good time to look at CNQ?
>> CNQ, one of our larger Canadian oil and gas companies, they are, they operate across the upstream area. They have light oil, heavy oil, synthetic oil as well as natural gas. They have been executing fairly well operationally lately as well they have been following that mantra of financial disciplines they have lowered their net debt levels and now that they have had a specific target, they are paying at 100% of their free cash flow in the form of share buybacks and dividends so again, very similar trends there that we have seen in the industry.
>> What would be the risks here? Somebody trying to figure out where oil goes from here.
>> The stock prices the oil and gas companies do bounce around with the price of oil so that's one risk.
There is always operational risks with these companies as well in terms of any production hiccups and that sort of thing.
>> A question getting over to the utilities side. What's your take on Enbridge?
>> Enbridge is a major pipeline and gas company as well as a utility and renewables division. Overall, the majority of its earnings are stable because they are regulated or contracted.
As we touched on at the beginning, they are seeing growth in projects they have in areas connecting to Gulf Coast US LNG facilities as well as growing their utility rate base. One major thing with Enbridge for the past year was this acquisition of three utilities in the US.
Just this past quarter, they indicated that they are fully funded on them so the market will be watching to see if the acquisition closes before the end of the year.
>> That was Enbridge. We are going to squeeze in one more question. Different than anything we have talked about for the entire program. The groceries, how are they looking?
>> The grocers have had a couple of solid years, their same-store sales growth and earnings have benefited partly from inflationary environment that helps your topline growth as well as the boost to population of the Canadian market which is helpful for a mature industry. They have been fairly disciplined on managing their cost base, so margins have held up well.
They also do have some pharmacy divisions which benefit from the aging population, growth in the specialty market as well as their ability to offer more services. One trend across the consumer space in Canada and the US that we have been seeing has been the pressure on the consumer, particularly at the low end.
For the grocers, that means better performance on their discount banners. The risk to groceries going forward, it's a mature market, same-store sales growth has been robust, that could come down a bit if we are in a lower inflationary environment for example as well valuations have expanded so the upside might be more limited.
>> Jennifer, always great to have you and get your insight. Thanks for joining us.
>> Thank you.
>> Our thanks to Jennifer Nowski, VP, Dir.
and portfolio manager at TD Asset Management.
As always, make sure you do your own research before making any investment decisions.
if we did not have time to get your question today, we will aim to put it into future shows. Stay tuned. We will be back tomorrow, it's jobs Friday on both sides of the border. We will be breaking all that down for you and what it could mean for interest rates going forward. On Monday, David Sekera, chief US market strategist with Morningstar Research will be our guest. He wants to take your questions about US equities.
A reminder that you get a head start with those questions. Just email MoneyTalkLive@TD.com.
That's all the time we have for the show today. Thanks for watching.
We will see you tomorrow.
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