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[music] >> Hello, I'm Greg Bonnell. Welcome to MoneyTalk Live, brought to you by TD Direct Investing.
Coming up on today's show,we are going to discuss the soaring yields we've seenin the treasury market, the 10 year treasury getting past 5%.
First time we've seen that since 2007.
What does it mean for investors in the markets? MoneyTalk's Anthony Okolie is going to take us through that along with Susan Prince. Anthony later in the show is going to take us through the health of the Canadian consumer.
We got some retail sales data out today and what it could mean for monetary policy. In today's WebBroker education segment, Nugwa Haruna is going to show us how you can keep track of your asset mix using the platform.
Before we get all that, let's get you an update on the market. market. market.
market. Composite Index.
Seeing a bid into gold as the precious metals are a haven plate so it has some mining names to the upside. Let's check in on Kinross first.
I could've picked any of them out of a hat.
It's coming off the the highs of the session. Some energy stocks are giving back today including pipeline diet Enbridge. At 4349, it sound a little more than 1%.
South of the border, investors are trying to figure out after they saw the 10 year treasury yield crack 5% what it all means for the path forward.
You got the S&P 500 down right now 31 points, three quarters of a percent.
I want to check in on the tech heavy NASDAQ, how is it cheering against the broader market?
More weakness year, approaching 1 1/2% down on the session. A lot of big tech name stepping back today.
Let's take a look at Amazon. At 125 bucks and change, your down about 2%. And that's your market update.
Market participants have had a careful eye on this one.
Watching the 10 year treasury yield put higher and higher over the last several sessions.
Briefly got about 5% before pulling back.
First time it's been in that territory since 2007. It does have applications for the market. Joining us now to discuss, MoneyTalk's Anthony Okolie and Susan Prince for our weekly roundtable. Thanks for joining us.
>> Thanks for having us.
>> We've seen Haven plays considering what's happening in the Middle East right now and the growing unrest.
Gold getting the bid, oil has been getting a bid but bonds haven't been getting a bid and yields have been pushing higher.
Perhaps they are focusing on what you were focusing on yesterday, Anthony, that was Jerome Powell giving a pretty anticipated and widely watched speech.
> This was, as you mentioned, a widely watched speech. This is the last speech before the Fed meets on November 1 and decide on interest rates.
I'm going to talk about some of the key comments that came out of that. One of the things that happened was fed echoed comments from several Fed officials which called for a pause and rates in the near term to see the impact the past tax will have on the economy and partly because we have seen a run-up of long-term rates, Greg, what you alluded to off the top, over the past month, it is tightened financial conditions in the US. While he acknowledged recent signs of cooling consumer prices, he did say that inflation is still too high and they continued strength in the jobs market and economic growth could warrant further tightening.
He did reiterate the need for higher for longer rates mantra which while also emphasizing the bid that the bank will be data dependent.
The next Fed meeting will be on November 1. Right now, the markets are pricing in a nearly 99% chance that the Fed will keep benchmark rates unchanged in November.
However, Jerome Powell did not shut the door on a potential hike in December.
>> The market perhaps paying more attention to the right now with the geopolitical risk.
At the same time, the bond side of the equation for investors is not quite, Susan, as straightforward as the equity side.
Trying to understand the relationship between price and risk and yield and also the yield curve, people want to hear about the significance of that.
I understand that your shop has been doing a bit of work on that.
>> We have and we have a piece on MoneyTalk DIY, the digital magazine, about why everyone is talking about the yield curve and there is so much going on with it that you want to unpack it a little bit more slowly.
Right now, the first thing we look at is why economists use the yield curve to get information. They use it for guidance get a sense of what the economy is looking like.
What they do with the yield curve as they say what are the rates if you are borrowing money for two years versus borrowing money for 10 years. And basically the idea being that the future is uncertain. So if the future is uncertain, i.e., as someone who is lending money, I should get more money in interest because the future is uncertain.
And the closer you are to the present, the less uncertain today's that you are going to be paid a premium. So economist pay attention to that relationship between the two year and the tenure and we have heard over the past year we have heard conversations about the yield curve becoming inverted. What that means is the short-term interest rate is higher than the long-term interest rate.
So whoa, I'm really uncertain about what's going on here, you need to pay me now and I will deal with the future a little bit later but you need to compensate me for the risk that I feel is in the current environment right now.
So that's the first thing about interest rates where we are talking big picture and when people like Powell or the Bank of Canada look at what they are saying about interest rates versus inflation, they are looking at those kinds of numbers.
One of the interest rates telling you about the future and what is inflation telling you?
>> So as a harbinger of certain things that other people who aren't familiar with the yield curve might say if there is an inversion, is there a recession?
How it works together.
>> All the machinations there. That's the big umbrella.
and then there is the day today of bonds.
if you or I want to put it in our portfolio, what am I looking at?
And that's when we start talking about prices and it gets a little bit confusing because you got par value which is the value that the bond will be when it matures on the date it matures, you have the price which changes depending on the coupon and the yield and so par value is the price when it matures, the coupon is the stated interest rate that is going to give you and then over time, so then you start comparing it, so if you were buying shoes and all the shoes for sale were 100 bucks but one day, someone else start selling shoes at $89 so the person who designs the shoes that you are looking at says, oh, okay, I need to be competitive with that so they start lowering their price, that's what's happening with bonds is that they are saying, oh, if the yield is what we are seeing, at 15 year highs, I can't sell my bond for $100 anymore with a coupon rate of X. I need the yield which is the price, the interest rate that you are being paid, divided by the price. I need that to more closely approximate what I am seeing out in the marketplace.
So you are starting to get all of these moving parts and people are saying, well, I don't understand.
Then we start focusing on it and you try to figure out, is this a good time to buy bonds, is it a bad time to buy bonds?
And like anything, it depends on your horizon, your objectives and your risk tolerance.
>> A great primer there on the MoneyTalk DIY website that the audience can check out in terms of making sense of all this.
Before I let the conversation go, with the rising yield, there have been fed speakers, Anthony, who said that maybe the bond market is doing the job for us of tightening monetary conditions because that's what the central banks have been doing for a year and 1/2 but our central bank, the last time I heard from you, you said, I'm not so sure about that.
Then we have a Bank of Canada rate announcement coming on Wednesday.
>> The Bank of Canada is meeting next week.
The consensus is that the Bank of Canada is not going to hikegiven that we recently got inflation numbers that came in weaker than expected.
Retail sales today, we will talk about that later the show, also not coming in as strong as expected so this is giving the Bank of Canada a bit of breathing room to perhaps say, look, we are going to pause next week and wait to see what impact the interest rates will have on the economy.
Now in the US, of course, they've been talking about how rising bond yields have had an impact on markets. We have seen that in certain markets, we see that in the housing market with interest rates north of I think touching as high as 8%.
That is having an effect, slowing down the housing market to a large degree because it's becoming more and more expensive to purchase a home because mortgage borrowing costs are so high.
So when they talk about how bond yields are doing the work for us, talking about how financial conditions are much tighter now and so perhaps they may not have to be as aggressive in raising interest rates, that's what the officials are talking about here.
>> Very consequential times. I thank you both for joining us to break some of it down.
>> Thank you.
>> Our thanks to Susan Prince.
Stay tuned.
Anthony will be back later with a look at the health of the Canadian consumer in the latest retail sales.
All this volatility and yields is having an impact on the market for corporate bonds but it might not be as dire as some investors fear.
Earlier I had a chance to discuss with TD Asset Management's Ben Chim.
>> Yeah, I mean, the volatility that we've seen in government bonds-- I say volatility probably is being easy in terms of how crazy things have been. It's really had a major impact across the bond market overall. We've seen corporate bond spreads widen a little bit as equity markets have weakened as a result of concerns around growth.
But, you know, I would say that, generally speaking, things have been quite calm in the corporate bond market, all things considered, particularly over the last two months or so. And spreads have remained sort of range bound, and liquidity continues to be quite solid.
And there really are two main reasons why the bond market has been so sanguine, despite all the volatility in government bonds. The first is the stronger economy, the resiliency of the US economy, and the global economy, for that matter, has given corporations a lot of time to adjust to what is a more challenging funding backdrop, a more challenging cost backdrop.
And so what that has meant is they've reduced their expenses. They've been able to adjust their spending profile accordingly and their debt profile accordingly. And they have situations now where their credit profile has really held up well despite weaker earnings going forward.
And so that's given the bond market a lot of confidence that there probably isn't going to be a blow up in the corporate bond space, probably isn't going to be a lot of dislocations, like what we've seen in previous downturns. So that's the first thing.
The second is the supply demand picture remains quite favorable, in favor of corporate bonds overall, and particularly investment grade. And so what I mean by that is, quite simply, there's still more buyers and sellers of corporate bonds. And flows have been fairly stable, especially considering that performance in the bond market has been pretty weak this year.
I think that's a bit of a testament to the attractiveness of corporate bond yields overall.
You're getting 6% yield for investment grade. You're getting 9% for high yield, so the long-term return profile looks appealing to many investors.
Of course, having some exposure to interest rates for a diversified portfolio makes sense as well, and I think there's some value to that, being in the investment grade market specifically and having that in your portfolio. So that's helping demand.
And then institutionally, higher bond yields really gives a lot of the pension funds, a lot of the insurance companies the ability to immunize their cash flows going forward. And so there's demand from that. So the demand side of the equation is quite robust.
On supply side, things are actually getting more constructive for corporate bonds. And that's because yields have moved up so much. So a lot of corporate bond issuers, if they had been thinking about issuing debt two months ago, well, now it's going to cost them 50 basis points, 75 basis points more. If you're an issuer with good liquidity, you have good credit quality, you can afford to wait and see if there's a better opportunity down the road to do that.
And so the outlook for issuance going forward for the rest of this year is probably going to be lower, and that's going to be supportive for the corporate bond market as well. So those are the two main factors really keeping spreads relatively sanguine amidst all the volatility.
>> It's really interesting dynamics in the market. If that is our backdrop, what sectors in the corporate bond market start to look attractive here?
>> Yeah, I mean, a lot of the concern, of course, is that things are going to get weaker.
And so because of that, there are sectors that have become quite interesting going forward.
We rely really heavily on the deep credit research that we do on the corporate bond space to find opportunities. And that often leads us to look for opportunities in sectors that may be a little bit out of favor, companies that have more headline risk that aren't particularly well understood.
One of those sectors that is quite out of favor right now is the real estate sector, the REIT sector specifically, where you've got higher interest rates really impacting the values of their underlying assets. You have an office property sector, a commercial real estate sector, that really is quite dislocated and quite a mess right now.
We've generally been avoiding the office property space. I think there's a lot more questions than answers there. But where that has created pockets of value is in areas like retail real estate, industrial REITs. Those are sectors where occupancies are still at very high levels. They're seeing good growth in terms of the rents.
In situations where leases have come up, they've been able to renew them at levels that are at or above inflation, sometimes even in double-digit level. And so earnings have been solid, cash flows have been very steady, and the BBB, BBB-minus-type investment grade REITs in those two spaces have been able to steadily improve their balance sheets. And we think that will continue.
So we like the two to three-year bonds in that part of the market, because yes, there could be some volatility with the economy going forward. But being short really dampens that volatility a bit. So that's an opportunity that we see.
The pipeline space is pretty interesting as well. And we've talked about that a few times.
But it's kind of like a tale of two markets, right? And where we see the sweet spot is in that BB, single B part of the market.
There you have management teams that are quite solid. You have assets that are fairly high quality, but companies that still need to invest in their business and grow and improve their balance sheets. And so we see steady improvement there, given the cash flows they're getting from strong oil prices.
And conversely, we're actually a little bit more nervous, a little bit more cautious on the higher quality pipes. So the BBB-pluses, the A-minuses, those companies have the balance sheet where they want it to be. And so there's going to be very little improvement there.
They're using most of their cash flows towards shareholder returns, towards M&As, and so we're a little bit more nervous about that.
When you look at opportunities moving further down the spectrum deep into the high yield market, what we like is defensives over cyclicals. So sectors like hospitals, consumer products, utilities, TELCO, that's all underperformed versus cyclicals this year.
We've seen it on the stocks. We've seen it a bit on the credit as well. And I think that creates opportunities because, particularly on the bond side, stable and predictable cash flows are very important.
And so we like the opportunities that the defensive sectors present.
And then on the metals and mining side, there are some interesting opportunities as well. Again, a sector that's disappointed a little bit because of the weaker growth in China than many had expected. But when you think about the long term, you know, copper specifically has some pretty good fundamentals behind it, limited amount of supply coming into play, very good demand long term because of energy transition.
So a lot of these B-plus, BB-minus copper issuers, they have bonds yielding between 8% to 10%. They're generating good free cash flow, and they're continuing to improve their balance sheet. So those, I would say, are some of the areas where we see the best value right now.
>> Right now. So obviously, there's some potential there. What would the risks be overall? It would just be the credit environment and this continued push higher in yield?
>> Yes, absolutely. As yields rise and as the economy slows down, most of the companies are strong enough that we're looking at to withstand that. But certainly, if things fall weaker than expected and something breaks, which often happens when financial conditions get tighter, you could see those kind of sectors underperform because of how cyclical they are.
>> That was Ben Chim, VP and Dir.
at TD Asset Management.
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.
Solar equipment stocks are in the spotlight today, signs of weak demand for the technology.
Solar edges warning investors that it's all unexpected cancellations from customers in Europe during its most recent quarter.
The news is not only weighing on the shares of solar edge, down to the tune of almost 30%, but also several of its competitors in the solar panel equipment space.
We also have shares of robotic surgery company Intuitive Surgical under pressure today following makes quarterly results from the company.
Right now it's down about 3 1/2%. They did provide a beat on the profit line but they did miss when it came to revenue.
Recall that earlier this year, Intuitive Surgical warned that the success of its the weight loss drugs was going to weigh on demand for surgeries. Resilient consumer spending helped American express delivery and earnings before its most recent quarter.
The credit card giant is seeing it seeing robust demand from millennial's and the Jonesy courts. That said, American Express abusing his provision for credit losses.
It's down about 4%.
Let's check in on the TSX Composite Index, down 172 points, almost a full percent.
Getting weighed down by financials, pretty mixed showing in the energy space as well.
So to the border, S&P 500, investors trying to figure out, 10 year treasury yield cracked about 5%, briefly, didn't hold but he did crack above that number for the first time since 2007. What does it mean?
you're down about 42 points right now in the S&P 500 or a full percent.
Let's talk about Canadian shoppers. We closed our wallets in August. Advanced estimates for September .2 and a flat retail reading.
Anthony, let's start with the numbers.
>> I think the Bank of Canada is looking at these reports as they gear up for the next Bank of Canada interest rate decision.
Canadian retail sales was down slightly.
1% month over month in August versus StatsCan flash estimate of 8.3% decline.
However, the numbers were in line with estimates.
Looking ahead to September, stats Canada's flash estimate showed that sales were unchanged last month. When we adjust for inflation, volume sales were actually down.7% month over month.
When you look at core sales, that excludes the sort of volatile auto and gas court agrees. It was down about .
3% in August.
Taking a look at the key sectors that kind of drove the number, we've seen that the biggest drag on retail sales was really the motor vehicle and parts dealers. That had a huge negative impact. It was down nearly 1% month over month. Food and beverage retailers were also weaker.
Canadian consumers spent less at supermarkets, other grocery stores excluding convenient retailers. They also spent less on beer, wine and liquor retailers in August.
The biggest increases as you can see on the chart, gasoline stations and fuel vendors up nearly 3% month over month.
The biggest driver for core retail sales was health and personal care retailers. Of course, core retail sales, that will have an impact on long-term policy.
I think the key to these numbers is that we got the Bank of Canada decision next week. They will be looking at this. They look to the reports as well and I'm sure it's going to factor into their decision.
>> When I think about it, I had to check my schedule because sometimes a lot happens a week ago and you'd think it was a month ago. It not only retail sales with the help of consumer but we had the inflation report earlier in the week, we had the Canadian Business Outlook Survey.
I know you did a deep dive on all of them, so ahead of next week's rate decision, what's the thinking?
>> In terms of the Bank of Canada policy, TD Economics is sort of a line with the market. They believe that the Bank of Canada has enough information and support to hold on rates and keep the rate at 5% next week. I think with this latest read, TD Economics is forecasting personal consumption and a church to be fairly weak in the third quarter, climbing only between 1 to 1.5% which is pretty much in line with TD's internal spending data.
>> Thanks for breaking it down, Anthony.
> My pleasure.
>> MoneyTalk's Anthony Okolie.
Now let's get our educational segment of the day.
If you want to take a look at what your asset mix looks like in your portfolio and WebBroker, well, the platform can help.
Nugwa Haruna, Senior client education instructor with TD Direct Investing has more.
>> So for an investor who is looking to reach their investment goal by creating an investment portfolio, they may consider asset allocation as well as diversification.
The idea behind using asset allocation and diversion is to help investors manage risk when it comes to investing.
Let's look at how investors could find different asset classes.
the idea behind this being the different asset classes respond in different ways to different market conditions. So then investors want to manage their risk and potentially limit the volatility in their portfolio could consider asset allocation.
Investors will be able to see what the breakdown is in terms of equities, fixed income as well as cash and cash equivalents in their accounts. Now investors who want to have a better understanding of how these investments work may be able to do that by clicking on the help button and what this does is it gives investors a breakdown of these different asset classes as well as how they tend to respond in different market cycles. An investor may actually have a question and they may say, what if I don't have the time or the information to create a robust investment portfolio?
That's what investors could potentially consider using investment funds. So there's different asset allocation investment funds that are available to investors and they could actually select these funds based on what they are investor profile would be. So let's take a look at where investors can buy these different kinds of investment funds.
Under research, underinvestment, investors will click on ETFs, so exchange traded funds, and what we are going to do is use the mini screeners tool which lets investors use different criteria to select different kinds of securities and under ETF categories, we are going to click on this drop down and in this situation, let's click on exchange traded funds that have up to 50 to 70% when it comes to equities in that portfolio and it shows us 22 matches. So I'm gonna scroll down to pull up these 22 exchange traded funds here.
And then investors will be brought to a page with a breakdown of these different exchange traded funds. One more thing to show us is if you want to see what exactlyeach ETF is holding, I'm just going to select one exchange traded fund on the screen and I'm going to go with MDI be and once I click on it, I actually click on summary and the idea behind this is I actually want to see what the breakdown in asset classes are. Once him on this page, I scroll down, focusing on the left side of the screen here, and then I start to see what that breakdown is.
So I see that with this particular ETF has a certain amount of US stocks and equities including some non-US equities.
It also has a holding of over 20% preferred shares, a hybrid between stocks and fixed income securities as well as US bonds and non-US bonds.
Investors can see the different sectors the ETF is invested in. I see the geographic regions and then see what the top 10 holdings that the fund managers holding in this ETF. Investors can use some of these tools when they are looking to have some kind of diversification in their portfolio as a way to potentially help manage the risks of investing in the markets.
>> Our thanks to Nugwa Haruna, senior client education instructor at TD Direct Investing. And a reminder that October is investor education month at TD Direct Investing.
[music] It's been a pretty rough go over the last several months for some of the big Canadian dividend paying stocks.
Central banks hiking rates aggressively.
The bond market pushing rates higher. So we are seeing some signs of cooling inflation. Could that mean better days ahead for some of these names?
Earlier I was joined by Michael O'Brien, managing Dir. and head of core Canadian equities at TD Asset Management to discuss.
>> Yeah, it's been a tough year for these names.
And when you think about it, Greg, this is typically-- these are the names that are supposed to be the sleep-at-night portion of your portfolio, the steady names that you don't have to worry about. But it's been a pretty tough year.
And so I think really to unpack why they've struggled, we can go through a number of the larger names. They all kind of have company-specific or idiosyncratic stories around them.
But at the end of the day, I think it's pretty clear that it's been this big rise in interest rates that have really pressured the valuations of these stocks.
People are finding alternatives in cash and bonds and GICs.
And so I think really, if you want to see that trade turn around, if you want to see better days, you have to have a view that interest rates are close to peaking here, not to say that they necessarily have to come down right away. But if you gain a little bit of confidence that maybe rates aren't going a lot higher, then it might be an interesting time to start poking around these names.
>> Before the pandemic, of course, there was the TINA trade. There is no alternative. And suddenly, you enter the pandemic. And there was no alternative.
And now you're talking about money market funds. You're talking about GICs, all those other instruments that are giving the yield, some of these dividend players.
It's interesting about the dividend players because it can be twofold. They're competing with cash instruments for that yield. But they also carry a lot of debt.
>> Yes. Well, and there's a third element of that, too. But you're absolutely right.
There's the competition from the higher rates. They do tend to be pretty capital-intensive businesses, which usually coincides with pretty good debt load. Obviously, those are key reasons why they're interest-sensitive stocks. That explains a big portion of why they tend to struggle when rates are high.
The other attribute that investors traditionally have looked to in these names, though, that's sort of separate from this is they don't tend to be that economically sensitive. Whether you're talking about your telephone companies, your cable companies, you're not going to give up your cell phone. You're not going to give up your internet connection.
Regulated utilities, some of these pipeline companies that are heavily contractual revenue streams, they don't tend to be as sensitive to the ups and downs of the economy. And so it's been an interesting year where interest rates have gone up because, frankly, growth has come in a little bit better and inflation has stayed a bit hotter through 2023 than maybe we thought at the beginning of the year.
But in Canada specifically, if we start to see the economy cooling a little bit-- and we saw a little bit of relief this morning in the inflation print, which was nice-- in that type of environment, if people start looking at these more as that steady performer in their portfolio from a fundamental perspective as opposed to a rate-sensitive name that's being beaten up by higher interest rates, that could change the way people look at the stocks here.
>> You talked as well about apart from these sort of bigger macro issues, some of these blue-chip dividend payers in Canada, whether it's a BCE or maybe it's a Trans-Canada pipeline, they have their own issues, too. So you have all these other issues. Plus, an investor might take a look at some of these names and say, oh, I'm not too sure about these. Walk me through a few of them.
>> Sure. Well, if you look at the big pipeline names, which are very large-index weights and obviously very closely followed by all of us, TC Energy, the old TransCanada pipeline, and Enbridge, they're both trading at some whopping dividend yields here. They really catch your attention in the 7% to 8% range.
But I think as we've all learned over time, sometimes the higher-dividend yield is a sign that investors have fundamental concerns about the sustainability of, can they continue to grow the dividend? Can they continue to sustain the dividend?
In both cases, TC Energy and Enbridge, their dividend payout ratios are quite high. So you could argue they're a little bit out ahead of their skis in terms of the dividend payout ratios. And TC Energy specifically, they've kind of gotten extended. But they're also having a little bit of trouble getting some of these very large pipeline projects across the finish line. They've had some cost overruns.
I mean, the most important one of these is Coastal GasLink, which is meant to connect the natural gas fields of British Columbia to LNG Canada, which is supposed to come online in 2025. This has been several billion dollars over budget. They've had to do an equity raise. They've had to sell some assets.
So those are all legitimate concerns. If they can get Coastal GasLink across the finish line this fall the way they're hoping to without any more cost overruns, that will certainly remove one overhang on the stock. But them and Enbridge both, they still have, at the end of the day, debt levels that are probably a bit higher than they should be, payout ratios that are a bit higher than they should be, which just means they're a little bit handcuffed in what they can do.
So the way I look at this is I think what we should expect is a slower pace of dividend growth out of these two, which were always dividend growth stalwarts. I think the dividend growth rate for those two names is going to be lower going forward than we've been used to.
>> What about the telecom space? I mean, there's that old saying of the widows-and-orphans stocks. And people would have perhaps put BCE in that bucket or a TELUS in that bucket. Those stocks also getting hit this year.
>> Yes, absolutely. And so when you think about those names, one of the reasons why they were widows-and-orphans stocks is they didn't have a lot of competition. You had a phone company. You had a cable company. Obviously, as technology has developed over the last couple decades, they've been thrown into direct competition. But even there, historically the Canadian market's been very stable, the big three, oligopoly and wireless.
I think one of the dynamics that's changed this year obviously is with Shaw-- or with Rogers completing its Shaw acquisition and then being asked to divest Shaw's wireless business in Freedom Mobile to Québecor, that's changed the competitive dynamic.
It's put a new competitor into western Canadian landline. It's also put a new competitor into the wireless market.
And so I think investors have been apprehensive about how aggressively these companies will compete on price, what that means for margins, is there room for four players? So I think that's been one of the big issues facing both those companies.
The other part similar to Enbridge and TC Energy is both of these companies have elevated payout ratios. We've looked to them for steady dividend growth in the past.
They've delivered it up to this point. But in both cases, when you look at the amount of debt they have on their balance sheet, when you look at where the dividend-payout ratios are in relation to their earnings and their free cash flow, they're a little bit stretched.
So people are raising some questions around, can TELUS continue to grow its dividend at 7% to 10% the way they've promised? Can BCE continue to deliver that 5% dividend growth that investors have gotten used to? So those are some of the question marks around them. So those are dogging these individual stocks, but then I point to the utility names where there is no hair on the stocks.
>> Regulated industry.
>> They're regulated industry, relatively clean stories, but they've had the same pressure on their share prices as the pipeline and telecom names, which, again, leads us back to interest rates being the culprit.
> That was Michael O'Brien, managing Dir.
and head of core Canadian equities at TD Asset Management.
Now for an update on the markets.
We are having a look at Edie's Advanced Dashboard, a platform designed for active traders available through TD Direct Investing. This is the malfunction, gives you a view of the market movers. Let's start with the TSX 60, we are going to go by price and volume.
You can see pretty clearly on the screen where the weaknesses today. It is in the financials which are a heavyweight for the top line TSX constant number but also in the energy names.
We don't have a big pullback in the price of crude but we are seeing some of these names give back some of their recent gains.
Looking for some green on the screen, we have an elevated price for gold with the Geo political risk.
Haven Place, name like Barrick Gold, up to the tune of almost 3%. Sort of outstripping some of its gold-mining brethren though, including Kinross, giving up some gains. It is still impulsive territory but less than 1% right now.
South of the border, the US 10 year treasury getting a lot of attention in recent days and for good reason.
It cracked 5% for the first time since 2007.
It has pulled back from the number right now at about 4.9%. These are elevated yields from what we are used to and a pretty quick run-up in yields for the past several weeks. Pretty makes big south of the border.
You've got Amazon and Tesla to the downside but AT&T's still showing some strength for a second day. You get more information about TD Advanced Dashboard by visiting TD.com/Advanced Dashboard.
That's all the time after the show today.
Stay tuned. We'll be back on Monday with Hiren Amin, Senior client education instructor with TD Direct Investing.
He will take your questions on how to get more out of the WebBroker platform.
I know you have a lot of questions day-to-day, that will be the day for it herein. Just email moneytalklive@td.com.
That's all the time we have the program.
On behalf of Mia and Anthony are at the desk, Susan who joined usoff the top, and everyone behind the scenes who bring you the show on a daily basis, thanks for watching and we will see you next week.
[music]
Coming up on today's show,we are going to discuss the soaring yields we've seenin the treasury market, the 10 year treasury getting past 5%.
First time we've seen that since 2007.
What does it mean for investors in the markets? MoneyTalk's Anthony Okolie is going to take us through that along with Susan Prince. Anthony later in the show is going to take us through the health of the Canadian consumer.
We got some retail sales data out today and what it could mean for monetary policy. In today's WebBroker education segment, Nugwa Haruna is going to show us how you can keep track of your asset mix using the platform.
Before we get all that, let's get you an update on the market. market. market.
market. Composite Index.
Seeing a bid into gold as the precious metals are a haven plate so it has some mining names to the upside. Let's check in on Kinross first.
I could've picked any of them out of a hat.
It's coming off the the highs of the session. Some energy stocks are giving back today including pipeline diet Enbridge. At 4349, it sound a little more than 1%.
South of the border, investors are trying to figure out after they saw the 10 year treasury yield crack 5% what it all means for the path forward.
You got the S&P 500 down right now 31 points, three quarters of a percent.
I want to check in on the tech heavy NASDAQ, how is it cheering against the broader market?
More weakness year, approaching 1 1/2% down on the session. A lot of big tech name stepping back today.
Let's take a look at Amazon. At 125 bucks and change, your down about 2%. And that's your market update.
Market participants have had a careful eye on this one.
Watching the 10 year treasury yield put higher and higher over the last several sessions.
Briefly got about 5% before pulling back.
First time it's been in that territory since 2007. It does have applications for the market. Joining us now to discuss, MoneyTalk's Anthony Okolie and Susan Prince for our weekly roundtable. Thanks for joining us.
>> Thanks for having us.
>> We've seen Haven plays considering what's happening in the Middle East right now and the growing unrest.
Gold getting the bid, oil has been getting a bid but bonds haven't been getting a bid and yields have been pushing higher.
Perhaps they are focusing on what you were focusing on yesterday, Anthony, that was Jerome Powell giving a pretty anticipated and widely watched speech.
> This was, as you mentioned, a widely watched speech. This is the last speech before the Fed meets on November 1 and decide on interest rates.
I'm going to talk about some of the key comments that came out of that. One of the things that happened was fed echoed comments from several Fed officials which called for a pause and rates in the near term to see the impact the past tax will have on the economy and partly because we have seen a run-up of long-term rates, Greg, what you alluded to off the top, over the past month, it is tightened financial conditions in the US. While he acknowledged recent signs of cooling consumer prices, he did say that inflation is still too high and they continued strength in the jobs market and economic growth could warrant further tightening.
He did reiterate the need for higher for longer rates mantra which while also emphasizing the bid that the bank will be data dependent.
The next Fed meeting will be on November 1. Right now, the markets are pricing in a nearly 99% chance that the Fed will keep benchmark rates unchanged in November.
However, Jerome Powell did not shut the door on a potential hike in December.
>> The market perhaps paying more attention to the right now with the geopolitical risk.
At the same time, the bond side of the equation for investors is not quite, Susan, as straightforward as the equity side.
Trying to understand the relationship between price and risk and yield and also the yield curve, people want to hear about the significance of that.
I understand that your shop has been doing a bit of work on that.
>> We have and we have a piece on MoneyTalk DIY, the digital magazine, about why everyone is talking about the yield curve and there is so much going on with it that you want to unpack it a little bit more slowly.
Right now, the first thing we look at is why economists use the yield curve to get information. They use it for guidance get a sense of what the economy is looking like.
What they do with the yield curve as they say what are the rates if you are borrowing money for two years versus borrowing money for 10 years. And basically the idea being that the future is uncertain. So if the future is uncertain, i.e., as someone who is lending money, I should get more money in interest because the future is uncertain.
And the closer you are to the present, the less uncertain today's that you are going to be paid a premium. So economist pay attention to that relationship between the two year and the tenure and we have heard over the past year we have heard conversations about the yield curve becoming inverted. What that means is the short-term interest rate is higher than the long-term interest rate.
So whoa, I'm really uncertain about what's going on here, you need to pay me now and I will deal with the future a little bit later but you need to compensate me for the risk that I feel is in the current environment right now.
So that's the first thing about interest rates where we are talking big picture and when people like Powell or the Bank of Canada look at what they are saying about interest rates versus inflation, they are looking at those kinds of numbers.
One of the interest rates telling you about the future and what is inflation telling you?
>> So as a harbinger of certain things that other people who aren't familiar with the yield curve might say if there is an inversion, is there a recession?
How it works together.
>> All the machinations there. That's the big umbrella.
and then there is the day today of bonds.
if you or I want to put it in our portfolio, what am I looking at?
And that's when we start talking about prices and it gets a little bit confusing because you got par value which is the value that the bond will be when it matures on the date it matures, you have the price which changes depending on the coupon and the yield and so par value is the price when it matures, the coupon is the stated interest rate that is going to give you and then over time, so then you start comparing it, so if you were buying shoes and all the shoes for sale were 100 bucks but one day, someone else start selling shoes at $89 so the person who designs the shoes that you are looking at says, oh, okay, I need to be competitive with that so they start lowering their price, that's what's happening with bonds is that they are saying, oh, if the yield is what we are seeing, at 15 year highs, I can't sell my bond for $100 anymore with a coupon rate of X. I need the yield which is the price, the interest rate that you are being paid, divided by the price. I need that to more closely approximate what I am seeing out in the marketplace.
So you are starting to get all of these moving parts and people are saying, well, I don't understand.
Then we start focusing on it and you try to figure out, is this a good time to buy bonds, is it a bad time to buy bonds?
And like anything, it depends on your horizon, your objectives and your risk tolerance.
>> A great primer there on the MoneyTalk DIY website that the audience can check out in terms of making sense of all this.
Before I let the conversation go, with the rising yield, there have been fed speakers, Anthony, who said that maybe the bond market is doing the job for us of tightening monetary conditions because that's what the central banks have been doing for a year and 1/2 but our central bank, the last time I heard from you, you said, I'm not so sure about that.
Then we have a Bank of Canada rate announcement coming on Wednesday.
>> The Bank of Canada is meeting next week.
The consensus is that the Bank of Canada is not going to hikegiven that we recently got inflation numbers that came in weaker than expected.
Retail sales today, we will talk about that later the show, also not coming in as strong as expected so this is giving the Bank of Canada a bit of breathing room to perhaps say, look, we are going to pause next week and wait to see what impact the interest rates will have on the economy.
Now in the US, of course, they've been talking about how rising bond yields have had an impact on markets. We have seen that in certain markets, we see that in the housing market with interest rates north of I think touching as high as 8%.
That is having an effect, slowing down the housing market to a large degree because it's becoming more and more expensive to purchase a home because mortgage borrowing costs are so high.
So when they talk about how bond yields are doing the work for us, talking about how financial conditions are much tighter now and so perhaps they may not have to be as aggressive in raising interest rates, that's what the officials are talking about here.
>> Very consequential times. I thank you both for joining us to break some of it down.
>> Thank you.
>> Our thanks to Susan Prince.
Stay tuned.
Anthony will be back later with a look at the health of the Canadian consumer in the latest retail sales.
All this volatility and yields is having an impact on the market for corporate bonds but it might not be as dire as some investors fear.
Earlier I had a chance to discuss with TD Asset Management's Ben Chim.
>> Yeah, I mean, the volatility that we've seen in government bonds-- I say volatility probably is being easy in terms of how crazy things have been. It's really had a major impact across the bond market overall. We've seen corporate bond spreads widen a little bit as equity markets have weakened as a result of concerns around growth.
But, you know, I would say that, generally speaking, things have been quite calm in the corporate bond market, all things considered, particularly over the last two months or so. And spreads have remained sort of range bound, and liquidity continues to be quite solid.
And there really are two main reasons why the bond market has been so sanguine, despite all the volatility in government bonds. The first is the stronger economy, the resiliency of the US economy, and the global economy, for that matter, has given corporations a lot of time to adjust to what is a more challenging funding backdrop, a more challenging cost backdrop.
And so what that has meant is they've reduced their expenses. They've been able to adjust their spending profile accordingly and their debt profile accordingly. And they have situations now where their credit profile has really held up well despite weaker earnings going forward.
And so that's given the bond market a lot of confidence that there probably isn't going to be a blow up in the corporate bond space, probably isn't going to be a lot of dislocations, like what we've seen in previous downturns. So that's the first thing.
The second is the supply demand picture remains quite favorable, in favor of corporate bonds overall, and particularly investment grade. And so what I mean by that is, quite simply, there's still more buyers and sellers of corporate bonds. And flows have been fairly stable, especially considering that performance in the bond market has been pretty weak this year.
I think that's a bit of a testament to the attractiveness of corporate bond yields overall.
You're getting 6% yield for investment grade. You're getting 9% for high yield, so the long-term return profile looks appealing to many investors.
Of course, having some exposure to interest rates for a diversified portfolio makes sense as well, and I think there's some value to that, being in the investment grade market specifically and having that in your portfolio. So that's helping demand.
And then institutionally, higher bond yields really gives a lot of the pension funds, a lot of the insurance companies the ability to immunize their cash flows going forward. And so there's demand from that. So the demand side of the equation is quite robust.
On supply side, things are actually getting more constructive for corporate bonds. And that's because yields have moved up so much. So a lot of corporate bond issuers, if they had been thinking about issuing debt two months ago, well, now it's going to cost them 50 basis points, 75 basis points more. If you're an issuer with good liquidity, you have good credit quality, you can afford to wait and see if there's a better opportunity down the road to do that.
And so the outlook for issuance going forward for the rest of this year is probably going to be lower, and that's going to be supportive for the corporate bond market as well. So those are the two main factors really keeping spreads relatively sanguine amidst all the volatility.
>> It's really interesting dynamics in the market. If that is our backdrop, what sectors in the corporate bond market start to look attractive here?
>> Yeah, I mean, a lot of the concern, of course, is that things are going to get weaker.
And so because of that, there are sectors that have become quite interesting going forward.
We rely really heavily on the deep credit research that we do on the corporate bond space to find opportunities. And that often leads us to look for opportunities in sectors that may be a little bit out of favor, companies that have more headline risk that aren't particularly well understood.
One of those sectors that is quite out of favor right now is the real estate sector, the REIT sector specifically, where you've got higher interest rates really impacting the values of their underlying assets. You have an office property sector, a commercial real estate sector, that really is quite dislocated and quite a mess right now.
We've generally been avoiding the office property space. I think there's a lot more questions than answers there. But where that has created pockets of value is in areas like retail real estate, industrial REITs. Those are sectors where occupancies are still at very high levels. They're seeing good growth in terms of the rents.
In situations where leases have come up, they've been able to renew them at levels that are at or above inflation, sometimes even in double-digit level. And so earnings have been solid, cash flows have been very steady, and the BBB, BBB-minus-type investment grade REITs in those two spaces have been able to steadily improve their balance sheets. And we think that will continue.
So we like the two to three-year bonds in that part of the market, because yes, there could be some volatility with the economy going forward. But being short really dampens that volatility a bit. So that's an opportunity that we see.
The pipeline space is pretty interesting as well. And we've talked about that a few times.
But it's kind of like a tale of two markets, right? And where we see the sweet spot is in that BB, single B part of the market.
There you have management teams that are quite solid. You have assets that are fairly high quality, but companies that still need to invest in their business and grow and improve their balance sheets. And so we see steady improvement there, given the cash flows they're getting from strong oil prices.
And conversely, we're actually a little bit more nervous, a little bit more cautious on the higher quality pipes. So the BBB-pluses, the A-minuses, those companies have the balance sheet where they want it to be. And so there's going to be very little improvement there.
They're using most of their cash flows towards shareholder returns, towards M&As, and so we're a little bit more nervous about that.
When you look at opportunities moving further down the spectrum deep into the high yield market, what we like is defensives over cyclicals. So sectors like hospitals, consumer products, utilities, TELCO, that's all underperformed versus cyclicals this year.
We've seen it on the stocks. We've seen it a bit on the credit as well. And I think that creates opportunities because, particularly on the bond side, stable and predictable cash flows are very important.
And so we like the opportunities that the defensive sectors present.
And then on the metals and mining side, there are some interesting opportunities as well. Again, a sector that's disappointed a little bit because of the weaker growth in China than many had expected. But when you think about the long term, you know, copper specifically has some pretty good fundamentals behind it, limited amount of supply coming into play, very good demand long term because of energy transition.
So a lot of these B-plus, BB-minus copper issuers, they have bonds yielding between 8% to 10%. They're generating good free cash flow, and they're continuing to improve their balance sheet. So those, I would say, are some of the areas where we see the best value right now.
>> Right now. So obviously, there's some potential there. What would the risks be overall? It would just be the credit environment and this continued push higher in yield?
>> Yes, absolutely. As yields rise and as the economy slows down, most of the companies are strong enough that we're looking at to withstand that. But certainly, if things fall weaker than expected and something breaks, which often happens when financial conditions get tighter, you could see those kind of sectors underperform because of how cyclical they are.
>> That was Ben Chim, VP and Dir.
at TD Asset Management.
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.
Solar equipment stocks are in the spotlight today, signs of weak demand for the technology.
Solar edges warning investors that it's all unexpected cancellations from customers in Europe during its most recent quarter.
The news is not only weighing on the shares of solar edge, down to the tune of almost 30%, but also several of its competitors in the solar panel equipment space.
We also have shares of robotic surgery company Intuitive Surgical under pressure today following makes quarterly results from the company.
Right now it's down about 3 1/2%. They did provide a beat on the profit line but they did miss when it came to revenue.
Recall that earlier this year, Intuitive Surgical warned that the success of its the weight loss drugs was going to weigh on demand for surgeries. Resilient consumer spending helped American express delivery and earnings before its most recent quarter.
The credit card giant is seeing it seeing robust demand from millennial's and the Jonesy courts. That said, American Express abusing his provision for credit losses.
It's down about 4%.
Let's check in on the TSX Composite Index, down 172 points, almost a full percent.
Getting weighed down by financials, pretty mixed showing in the energy space as well.
So to the border, S&P 500, investors trying to figure out, 10 year treasury yield cracked about 5%, briefly, didn't hold but he did crack above that number for the first time since 2007. What does it mean?
you're down about 42 points right now in the S&P 500 or a full percent.
Let's talk about Canadian shoppers. We closed our wallets in August. Advanced estimates for September .2 and a flat retail reading.
Anthony, let's start with the numbers.
>> I think the Bank of Canada is looking at these reports as they gear up for the next Bank of Canada interest rate decision.
Canadian retail sales was down slightly.
1% month over month in August versus StatsCan flash estimate of 8.3% decline.
However, the numbers were in line with estimates.
Looking ahead to September, stats Canada's flash estimate showed that sales were unchanged last month. When we adjust for inflation, volume sales were actually down.7% month over month.
When you look at core sales, that excludes the sort of volatile auto and gas court agrees. It was down about .
3% in August.
Taking a look at the key sectors that kind of drove the number, we've seen that the biggest drag on retail sales was really the motor vehicle and parts dealers. That had a huge negative impact. It was down nearly 1% month over month. Food and beverage retailers were also weaker.
Canadian consumers spent less at supermarkets, other grocery stores excluding convenient retailers. They also spent less on beer, wine and liquor retailers in August.
The biggest increases as you can see on the chart, gasoline stations and fuel vendors up nearly 3% month over month.
The biggest driver for core retail sales was health and personal care retailers. Of course, core retail sales, that will have an impact on long-term policy.
I think the key to these numbers is that we got the Bank of Canada decision next week. They will be looking at this. They look to the reports as well and I'm sure it's going to factor into their decision.
>> When I think about it, I had to check my schedule because sometimes a lot happens a week ago and you'd think it was a month ago. It not only retail sales with the help of consumer but we had the inflation report earlier in the week, we had the Canadian Business Outlook Survey.
I know you did a deep dive on all of them, so ahead of next week's rate decision, what's the thinking?
>> In terms of the Bank of Canada policy, TD Economics is sort of a line with the market. They believe that the Bank of Canada has enough information and support to hold on rates and keep the rate at 5% next week. I think with this latest read, TD Economics is forecasting personal consumption and a church to be fairly weak in the third quarter, climbing only between 1 to 1.5% which is pretty much in line with TD's internal spending data.
>> Thanks for breaking it down, Anthony.
> My pleasure.
>> MoneyTalk's Anthony Okolie.
Now let's get our educational segment of the day.
If you want to take a look at what your asset mix looks like in your portfolio and WebBroker, well, the platform can help.
Nugwa Haruna, Senior client education instructor with TD Direct Investing has more.
>> So for an investor who is looking to reach their investment goal by creating an investment portfolio, they may consider asset allocation as well as diversification.
The idea behind using asset allocation and diversion is to help investors manage risk when it comes to investing.
Let's look at how investors could find different asset classes.
the idea behind this being the different asset classes respond in different ways to different market conditions. So then investors want to manage their risk and potentially limit the volatility in their portfolio could consider asset allocation.
Investors will be able to see what the breakdown is in terms of equities, fixed income as well as cash and cash equivalents in their accounts. Now investors who want to have a better understanding of how these investments work may be able to do that by clicking on the help button and what this does is it gives investors a breakdown of these different asset classes as well as how they tend to respond in different market cycles. An investor may actually have a question and they may say, what if I don't have the time or the information to create a robust investment portfolio?
That's what investors could potentially consider using investment funds. So there's different asset allocation investment funds that are available to investors and they could actually select these funds based on what they are investor profile would be. So let's take a look at where investors can buy these different kinds of investment funds.
Under research, underinvestment, investors will click on ETFs, so exchange traded funds, and what we are going to do is use the mini screeners tool which lets investors use different criteria to select different kinds of securities and under ETF categories, we are going to click on this drop down and in this situation, let's click on exchange traded funds that have up to 50 to 70% when it comes to equities in that portfolio and it shows us 22 matches. So I'm gonna scroll down to pull up these 22 exchange traded funds here.
And then investors will be brought to a page with a breakdown of these different exchange traded funds. One more thing to show us is if you want to see what exactlyeach ETF is holding, I'm just going to select one exchange traded fund on the screen and I'm going to go with MDI be and once I click on it, I actually click on summary and the idea behind this is I actually want to see what the breakdown in asset classes are. Once him on this page, I scroll down, focusing on the left side of the screen here, and then I start to see what that breakdown is.
So I see that with this particular ETF has a certain amount of US stocks and equities including some non-US equities.
It also has a holding of over 20% preferred shares, a hybrid between stocks and fixed income securities as well as US bonds and non-US bonds.
Investors can see the different sectors the ETF is invested in. I see the geographic regions and then see what the top 10 holdings that the fund managers holding in this ETF. Investors can use some of these tools when they are looking to have some kind of diversification in their portfolio as a way to potentially help manage the risks of investing in the markets.
>> Our thanks to Nugwa Haruna, senior client education instructor at TD Direct Investing. And a reminder that October is investor education month at TD Direct Investing.
[music] It's been a pretty rough go over the last several months for some of the big Canadian dividend paying stocks.
Central banks hiking rates aggressively.
The bond market pushing rates higher. So we are seeing some signs of cooling inflation. Could that mean better days ahead for some of these names?
Earlier I was joined by Michael O'Brien, managing Dir. and head of core Canadian equities at TD Asset Management to discuss.
>> Yeah, it's been a tough year for these names.
And when you think about it, Greg, this is typically-- these are the names that are supposed to be the sleep-at-night portion of your portfolio, the steady names that you don't have to worry about. But it's been a pretty tough year.
And so I think really to unpack why they've struggled, we can go through a number of the larger names. They all kind of have company-specific or idiosyncratic stories around them.
But at the end of the day, I think it's pretty clear that it's been this big rise in interest rates that have really pressured the valuations of these stocks.
People are finding alternatives in cash and bonds and GICs.
And so I think really, if you want to see that trade turn around, if you want to see better days, you have to have a view that interest rates are close to peaking here, not to say that they necessarily have to come down right away. But if you gain a little bit of confidence that maybe rates aren't going a lot higher, then it might be an interesting time to start poking around these names.
>> Before the pandemic, of course, there was the TINA trade. There is no alternative. And suddenly, you enter the pandemic. And there was no alternative.
And now you're talking about money market funds. You're talking about GICs, all those other instruments that are giving the yield, some of these dividend players.
It's interesting about the dividend players because it can be twofold. They're competing with cash instruments for that yield. But they also carry a lot of debt.
>> Yes. Well, and there's a third element of that, too. But you're absolutely right.
There's the competition from the higher rates. They do tend to be pretty capital-intensive businesses, which usually coincides with pretty good debt load. Obviously, those are key reasons why they're interest-sensitive stocks. That explains a big portion of why they tend to struggle when rates are high.
The other attribute that investors traditionally have looked to in these names, though, that's sort of separate from this is they don't tend to be that economically sensitive. Whether you're talking about your telephone companies, your cable companies, you're not going to give up your cell phone. You're not going to give up your internet connection.
Regulated utilities, some of these pipeline companies that are heavily contractual revenue streams, they don't tend to be as sensitive to the ups and downs of the economy. And so it's been an interesting year where interest rates have gone up because, frankly, growth has come in a little bit better and inflation has stayed a bit hotter through 2023 than maybe we thought at the beginning of the year.
But in Canada specifically, if we start to see the economy cooling a little bit-- and we saw a little bit of relief this morning in the inflation print, which was nice-- in that type of environment, if people start looking at these more as that steady performer in their portfolio from a fundamental perspective as opposed to a rate-sensitive name that's being beaten up by higher interest rates, that could change the way people look at the stocks here.
>> You talked as well about apart from these sort of bigger macro issues, some of these blue-chip dividend payers in Canada, whether it's a BCE or maybe it's a Trans-Canada pipeline, they have their own issues, too. So you have all these other issues. Plus, an investor might take a look at some of these names and say, oh, I'm not too sure about these. Walk me through a few of them.
>> Sure. Well, if you look at the big pipeline names, which are very large-index weights and obviously very closely followed by all of us, TC Energy, the old TransCanada pipeline, and Enbridge, they're both trading at some whopping dividend yields here. They really catch your attention in the 7% to 8% range.
But I think as we've all learned over time, sometimes the higher-dividend yield is a sign that investors have fundamental concerns about the sustainability of, can they continue to grow the dividend? Can they continue to sustain the dividend?
In both cases, TC Energy and Enbridge, their dividend payout ratios are quite high. So you could argue they're a little bit out ahead of their skis in terms of the dividend payout ratios. And TC Energy specifically, they've kind of gotten extended. But they're also having a little bit of trouble getting some of these very large pipeline projects across the finish line. They've had some cost overruns.
I mean, the most important one of these is Coastal GasLink, which is meant to connect the natural gas fields of British Columbia to LNG Canada, which is supposed to come online in 2025. This has been several billion dollars over budget. They've had to do an equity raise. They've had to sell some assets.
So those are all legitimate concerns. If they can get Coastal GasLink across the finish line this fall the way they're hoping to without any more cost overruns, that will certainly remove one overhang on the stock. But them and Enbridge both, they still have, at the end of the day, debt levels that are probably a bit higher than they should be, payout ratios that are a bit higher than they should be, which just means they're a little bit handcuffed in what they can do.
So the way I look at this is I think what we should expect is a slower pace of dividend growth out of these two, which were always dividend growth stalwarts. I think the dividend growth rate for those two names is going to be lower going forward than we've been used to.
>> What about the telecom space? I mean, there's that old saying of the widows-and-orphans stocks. And people would have perhaps put BCE in that bucket or a TELUS in that bucket. Those stocks also getting hit this year.
>> Yes, absolutely. And so when you think about those names, one of the reasons why they were widows-and-orphans stocks is they didn't have a lot of competition. You had a phone company. You had a cable company. Obviously, as technology has developed over the last couple decades, they've been thrown into direct competition. But even there, historically the Canadian market's been very stable, the big three, oligopoly and wireless.
I think one of the dynamics that's changed this year obviously is with Shaw-- or with Rogers completing its Shaw acquisition and then being asked to divest Shaw's wireless business in Freedom Mobile to Québecor, that's changed the competitive dynamic.
It's put a new competitor into western Canadian landline. It's also put a new competitor into the wireless market.
And so I think investors have been apprehensive about how aggressively these companies will compete on price, what that means for margins, is there room for four players? So I think that's been one of the big issues facing both those companies.
The other part similar to Enbridge and TC Energy is both of these companies have elevated payout ratios. We've looked to them for steady dividend growth in the past.
They've delivered it up to this point. But in both cases, when you look at the amount of debt they have on their balance sheet, when you look at where the dividend-payout ratios are in relation to their earnings and their free cash flow, they're a little bit stretched.
So people are raising some questions around, can TELUS continue to grow its dividend at 7% to 10% the way they've promised? Can BCE continue to deliver that 5% dividend growth that investors have gotten used to? So those are some of the question marks around them. So those are dogging these individual stocks, but then I point to the utility names where there is no hair on the stocks.
>> Regulated industry.
>> They're regulated industry, relatively clean stories, but they've had the same pressure on their share prices as the pipeline and telecom names, which, again, leads us back to interest rates being the culprit.
> That was Michael O'Brien, managing Dir.
and head of core Canadian equities at TD Asset Management.
Now for an update on the markets.
We are having a look at Edie's Advanced Dashboard, a platform designed for active traders available through TD Direct Investing. This is the malfunction, gives you a view of the market movers. Let's start with the TSX 60, we are going to go by price and volume.
You can see pretty clearly on the screen where the weaknesses today. It is in the financials which are a heavyweight for the top line TSX constant number but also in the energy names.
We don't have a big pullback in the price of crude but we are seeing some of these names give back some of their recent gains.
Looking for some green on the screen, we have an elevated price for gold with the Geo political risk.
Haven Place, name like Barrick Gold, up to the tune of almost 3%. Sort of outstripping some of its gold-mining brethren though, including Kinross, giving up some gains. It is still impulsive territory but less than 1% right now.
South of the border, the US 10 year treasury getting a lot of attention in recent days and for good reason.
It cracked 5% for the first time since 2007.
It has pulled back from the number right now at about 4.9%. These are elevated yields from what we are used to and a pretty quick run-up in yields for the past several weeks. Pretty makes big south of the border.
You've got Amazon and Tesla to the downside but AT&T's still showing some strength for a second day. You get more information about TD Advanced Dashboard by visiting TD.com/Advanced Dashboard.
That's all the time after the show today.
Stay tuned. We'll be back on Monday with Hiren Amin, Senior client education instructor with TD Direct Investing.
He will take your questions on how to get more out of the WebBroker platform.
I know you have a lot of questions day-to-day, that will be the day for it herein. Just email moneytalklive@td.com.
That's all the time we have the program.
On behalf of Mia and Anthony are at the desk, Susan who joined usoff the top, and everyone behind the scenes who bring you the show on a daily basis, thanks for watching and we will see you next week.
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