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Quarterly Update

September 30, 2020

Cue the broken record… We have made it abundantly clear over the past several months – if not years – that from our perspective, a return of dividend growth and share buybacks is one of the key signs of a return to normalcy for Canadian equities. As we begin to ponder the stock market outlook for 2022 and beyond, we believe recent earnings strength places Canadian companies in a strong position to begin redeploying excess cash balances and cash flow in the form of both investments and cash distribution. In fact, the TSX has exhibited an epic positive surprise cycle that has translated into one of the sharpest earnings rebounds on record. This, according to our work, is likely to generate an impressive, if not ambitious dividend growth cycle that could see overall dividend growth surge well above historical averages over the next 12-24 months. As such, we believe investors should begin positioning in areas that are likely to increase dividends and share buybacks.
 
Key Points:
 
Dividend Growth Poised for Epic Rebound Into 2022
  • Blockbuster earnings surprise + record earnings rebound + excess cash = suggests to us that the TSX could see one of the strongest periods of dividend growth in decades as we head into 2022. Cyclical Areas Key to Dividend Growth
  • Cyclical areas like Consumer Discretionary, Financials, and Industrials have seen their dividend growth slow sharply over the last twelve months, despite posting one of the strongest earnings rebounds on record. Consumer Discretionary Aligned for Strong Dividend Growth
  • Despite some near-term supply chain concerns, we believe the Consumer Discretionary sector has many of the hallmarks of a dividend growth sector and is likely going to be one of the key areas of dividend growth in the TSX over the next 12-24 months. Financials Could See Highest Dividend Growth Rate in a Decade
  • Our work suggests a significant amount of pent-up dividend growth within Financials. Industrials Has Competing Uses of Cash
  • The Industrial sector’s cash position remains strong and poised for deployment. However, we believe the hierarchy of capital deployment will likely focus on capex and M&A, followed by share buybacks and then renewed dividend growth. Implementation Strategies: North American Dividend Growth Portfolio