Preferred share advantage, ‘real assets’ frenzy and when bank dividends could rise: What you need to know in investing this week

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Looking for investing ideas? Here’s your weekly digest of the Globe’s latest insights and analysis from the pros, stock tips, portfolio strategies plus what investors need to know for the week ahead.

Yes, bank dividend hikes are coming. No, not yet

The prohibition on bank dividend increases and share buybacks – which the Office of the Superintendent of Financial Institutions introduced in March, 2020 – remains in place, John Heinzl writes. But there’s reason for optimism: With banks carrying large amounts of excess capital and vaccinations ramping up, a resumption of dividend hikes may not be far off.

OSFI could begin relaxing restrictions as early as the end of June, following the lead of the U.S. Federal Reserve, says Michael Clare, vice-president and portfolio manager with Brompton Funds. One potential obstacle, however, is the rise of deadlier, more contagious variants of the coronavirus. OSFI appears to be waiting for clear signs that the pandemic – and the economic disruption it has caused – is easing before removing restrictions on dividend increases. Read more here.

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More from John Heinzl: Yield Hog model dividend growth portfolio as of March 31, 2021

Gordon Pape: My high-yield income portfolio posts big gains, but it’s time to boost cash flow

Our High-Yield Portfolio is mainly designed to generate above-average income, but over the past six months it has also posted a large capital gain, Gordon Pape writes. This portfolio invests entirely in stocks, so it is best suited for non-registered accounts in which any capital losses can be deducted from taxable capital gains.

The portfolio is doing well, gaining 16.7 per cent during that time. All the stocks in the portfolio gained ground, with the largest contributions coming from CIBC and Sun Life. Here is a review of each security in the portfolio, how they have performed since the previous review in September, and why changes include adding to our BCE stake.

Income Investor High Yield Portfolio (as of March 19)

Weight % Total shares Avg. price Book value Current price Market value Retained income Gain/loss %
ENB-T 6.5 80 $48.64 $3,391.20 $45.35 $3,628.00 $308.62 18.2
PPL-T 8.6 130 $32.11 $4,173.75 $37.26 $4,843.80 $277.58 22.7
SLF-T 16.2 140 $27.48 $4,055.95 $64.73 $9,062.20 $327.03 131.4
CPX-T 7 110 $31.37 $3,450.90 $35.84 $3,942.40 $112.86 17.5
CM-T 12.4 55 $112.97 $6,213.30 $126.81 $6,974.55 $349.80 17.9
BEP-UN-T 15.2 172 $22.83 $3,926.11 $49.65 $8,539.80 $277.23 124.6
BEPC-T 4.2 42 $38.85 $1,631.84 $55.74 $2,341.08 $37.06 45.7
BCE-T 6.1 60 $56.75 $3,405.00 $56.74 $3,404.40 $202.44 5.9
T-N 6.4 120 $29.79 $3,574.80 $29.76 $3,571.20 $187.20 5.1
AQN-T 6.5 185 $19.00 $3,515.00 $19.53 $3,613.05 $114.33 6
NWC-T 8.5 135 $25.97 $3,505.95 $35.15 $4,745.25 $141.75 39.4
Cash 2.4 $1,319.67 $1,341.24
Total 100 $42,163.27 $56,006.97 $2,335.90 38.4
Inception $24,947.30 133.9

Read more: Where do stocks and bond yields go from here? BMO, Rosenberg, BlackRock and other market watchers weigh in

Rob Carrick: These preferred shares are right at home in a rising rate world

The forward momentum in the stock market is so strong that even preferred shares are rising with gusto, Rob Carrick writes. But there’s one corner of the preferred market that could still be undervalued – floating rate preferreds. If interest rates rise as expected in the years ahead, these floating rate shares would be especially appealing.

Most preferred shares these days are of the rate reset variety, where the dividend is reset every five years. Floating rate preferreds typically have their dividend rate adjusted every quarter, or even monthly. Here are seven issues favoured by John Nagel, preferred share specialist at Leede Jones Gable, including Brookfield Asset Management Series 2 and BCE Series AB, and why.

More from Rob Carrick: The only way young buyers will afford houses is if current owners give up some of their gains

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Real assets vs. stocks: which is the right investment for you?

One sure sign inflation is back in the spotlight is the flurry of new pitches for investing in “real” assets ranging from vacation homes to vintage cars, Ian McGugan writes. Real assets can look particularly attractive right now, when payoffs from more typical investments are low and many people are fretting about a possible return of inflationary pressures.

A new Bank of America report that lists five reasons to diversify into real assets, put forward by chief investment strategist Michael Hartnett. By his reckoning, the long-run price of real assets (real estate, commodities and collectibles) is at its lowest point relative to financial assets (stocks and bonds) since 1925. But is his argument quite as strong as it appears? Another way to say the same thing is that financial assets have performed better than real assets for nearly a century. Read more here.

Related: Five reasons the investor frenzy for ‘real assets’ is just beginning

More from Ian McGugan: Why all investors need to keep a close eye on rising bond yields

Markets finally seem ready to toss the junk rally

The bull market in stocks – now in its second year – is showing signs of maturing, Tim Shufelt writes. The infatuation with the riskiest names on the market has faded, potentially giving way to a more measured approach to stock picking as the global economy emerges from the pandemic.

For several months, market leadership has been concentrated in low-quality and heavily shorted stocks, as investors chased windfall returns in beaten-down sectors and unproven businesses. The month of March, however, saw the market’s most inflated and speculative pockets take a big step back, suggesting that the junk rally is “running on thin fumes,” Scotia Capital analyst Jean-Michel Gauthier wrote in a report. Read more here.

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What investors need to know for the week ahead

In the week ahead, Canada’s employment numbers for March will be released on Friday. Other economic data on tap include: U.S. factory orders for February (Monday); Canada’s merchandise trade balance, U.S. goods and services trade deficit as well as consumer credit for February (Wednesday); U.S. wholesale inventories for February (Friday).

Companies releasing their latest financial results this week include ConAgra Foods, Constellation Brands, Corus Entertainment and EXFO.

Read more: World market themes for the week ahead

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