# Current valuations of Canadian Dividend Paying stocks



## birdman (Feb 12, 2013)

Rightly or wrongly and excluding fixed income I invest almost exclusively in blue chip Canadian Dividend Paying stocks. Mostly banks and utilities with some of my larger holdings being RY,TD,CM, FTS,IPL,T, BCE. The annual dividends are generally in the 4% range but of course vary. Lately there seems to be lots of chatter that the PE's of these stocks are too high. However, to me it seems that in view of the current low interest rate environment (for which I do not see an end) that these PE's are not excessive. Again, speaking very generally, the dividends pay twice as much as fixed income and have favourable tax treatment. Just wondering if anyone has any comments.


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## My Own Advisor (Sep 24, 2012)

Like you frase, I hold many blue-chip CDN stocks, half of XIU for that matter; banks, telcos, utilities, etc. "The usuals" everyone talks about.

I largely ignore the chatter about high PEs and high valuations and what not. Sure, I probably won't buy lots right now but it's not like I'm going to sell them either. I'm staying investing, collecting and reinvesting dividends and I'll see where I end up in 15 years or so. As you have pointed out, you get very favourable tax treatment and income AND some capital gains as well.


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## Eder (Feb 16, 2011)

I think most PE's are high like everyone else...expectations are for profits to go up. GDP is showing signs of growing. A lot of uncertainty other than I know my dividend income will increase the usual 10% again this year.


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## Benting (Dec 21, 2016)

Interest rate definitely playing a huge part to my broken 5 yr GIC ladder. Bought RY instead of re-built the ladder last 4 yrs due to the low interest rate. My last rung has matured today. Will go for RY or TD to add to my 'insane'  overweighted bank holdings.


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## agent99 (Sep 11, 2013)

Benting said:


> Interest rate definitely playing a huge part to my broken 5 yr GIC ladder. Bought RY instead of re-built the ladder last 4 yrs due to the low interest rate. My last rung has matured today. Will go for RY or TD to add to my 'insane'  overweighted bank holdings.


I have about $50k in recently matured bonds and more coming by mid 2017. Just went through BMOIL FI offerings and find hardly anything in 1-3 or 3-5 yr maturity that I would want to buy. The ones on offer are corporates and likely just as likely to default as the underlying company. Convertible debenture offerings also thin. Looking at split preferreds with know maturity, but already have some of those. I can see why banks and other blue chip dividend payer PEs are high. probably more secure than most corporate FI.


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## hboy54 (Sep 16, 2016)

Hi:

I agree with your assessment, safe stocks are expensive. So are unsafe stocks with perhaps the exception of some oil and gas and perhaps a few other select bits.

I don't focus on the hyper safe high dividend stocks so my portfolio only yields 2.2% currently. This is lower than my long term target of 3 to 3.5% because I am quite light on utilities, consumer, and to a lessor extent financial. But like you said, why buy high?

So I am currently concentrating on paying down margin debt, in essence a 3% before tax FI investment. I can't buy safe stuff on valuation, and I can't buy unsafe albeit better valuation stuff because I already own boatloads. Indeed, I have been selling down resources, materials and manufacturing as they have done spectacularly the past year and must resist trying to squeeze the lemon dry. So the net result of the above plus gains is that debt is at 19% of net worth, down from 30% at year end 2015. My target debt is 25%, but things have gone so well of late, I figure I am better spending time to get ready for the next SHTF moment.

I see it as mostly sit on hands season. I will probably have a transaction or two throughout the balance of 2017, but there is no ongoing work to be done like there was through late 2014 to about mid 2016 where I had 2 or 3 dozen transactions: that is oil, gas, materials, financial and some others were in buy season.

hboy54


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## AltaRed (Jun 8, 2009)

Re: the OP. Perfectly fine if Total Return is not foremost in your strategy. During one's accumulating years, factors like ROE should be a major metric since you want to grow total return. As one approaches within 10 years of retirement, dividends starting being a more significant metric if for no other reason than more security of cash flow. 

Over the past 15+ years I built up my dividend paying stocks to provide that certainty (retired 11 years ago) but I know think valuations on these stocks are now rather high and my more recent picks have been low yielding stocks with strong ROE and preferably low debt, the latter of which are fairly hard to find. High debt ratios will crush stock momentum when interest rates increase.....and the bond yield curve is on its way up.


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## Oldroe (Sep 18, 2009)

I have all those and some. Hope those PE are high and lead to correction. Nothing like buying on sale.


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## mark0f0 (Oct 1, 2016)

BCE, for example, is laden with long-term debt. As long-term interest rates go up, the relative cost of servicing that long-term debt should decrease as the coupons are fixed. 

What's really been killer for BCE over the past few decades is financing their debt at long-term fixed rates, and then having to pay those expensive long-term finance costs as they're locked in. While suffering little inflation (and in fact deflation) on the price of their product. 

Similar deal with the pipelines, etc. The P/E's might appear to be higher, but if interest rates go up, so will their earnings on account of inflation and a decrease in real debt servicing costs.

The overall P/E of XIU right now is quoted at 19, which is trailing and is coming off a very bad year in the resource/O&G industry where earnings were zero or quite negative for many index components. In downturn periods, TSX P/E's can go into the 30s, even 40s quite easily, so the fact that the P/E is 19 in a downturn period is actually quite indicative of a relatively cheap stock market. If there's a cyclical earnings upturn (which there's already plenty of evidence of in the earnings over the past 3-6 months as expense structures are adjusted and a partial commodities recovery occurs), then the earnings growth could be very significant and P/E's could very well be low double digits if not even high single digits on a 'current' basis.


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## james4beach (Nov 15, 2012)

In my opinion, dividend stocks have become a "crowded trade". They have become ultra popular ever since central banks plunged us into the perpetual zero interest rate regime, around 2009.

Just looking through these forums shows this. Everyone has the same idea: abandon fixed income and get something fixed-income-ish using dividend stocks. The fact that this is such a popular and mainstream idea should itself be worrying. It means that a lot of capital has been chasing dividend paying stocks.

Partly this stems from desperation in a low interest rate environment. It could be that the low interest rate environment lasts for the rest of our lives. However, if there's ever a reversal of this theme, and if higher interest rates return, then money could flow OUT of dividend stocks as they find better risk/return in fixed income.


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## My Own Advisor (Sep 24, 2012)

I can't see fixed income being viable for another 30 years. I could be wrong of course! I'll put my money on stocks returning more than bonds going forward.


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## Dilbert (Nov 20, 2016)

james4beach said:


> In my opinion, dividend stocks have become a "crowded trade". They have become ultra popular ever since central banks plunged us into the perpetual zero interest rate regime, around 2009.
> 
> Just looking through these forums shows this. Everyone has the same idea: abandon fixed income and get something fixed-income-ish using dividend stocks. The fact that this is such a popular and mainstream idea should itself be worrying. It means that a lot of capital has been chasing dividend paying stocks.
> 
> Partly this stems from desperation in a low interest rate environment. It could be that the low interest rate environment lasts for the rest of our lives. However, if there's ever a reversal of this theme, and if higher interest rates return, then money could flow OUT of dividend stocks as they find better risk/return in fixed income.


Yes, not to mention the demographics at play here. Boomers are looking for decent returns!


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## jlivermore (Mar 28, 2017)

Regarding high P/Es, even though a p/e of 20 may seem high, you have to consider this in relation to the risk-free rate. So in the case of a p/e of 20, when you flip that e/p it gives a 5% yield. While that may be historically high, in comparison to the federal funds, overnight, or 30-year treasury rate, that is actually a pretty decent p/e.


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## agent99 (Sep 11, 2013)

My Own Advisor said:


> I can't see fixed income being viable for another 30 years. I could be wrong of course! I'll put my money on stocks returning more than bonds going forward.


Today, I searched for a FI place to put $13k cash that resulted from a matured bond in my wife's RRIF. In the end, I just added to a 2023 Bell bond that she already has. Yield on the $13k will be just 2.6%. Not much better than a GIC. May have been better to buy more BCE with about 5% yield! But I needed to make a feeble attempt to keep her FI allocation over 40%. 

Still uncertain about home for rest of my RRIF cash, which, at least in part, should be in FI or maybe more preferreds, which I don't understand too well.


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## james4beach (Nov 15, 2012)

My Own Advisor said:


> I can't see fixed income being viable for another 30 years. I could be wrong of course! I'll put my money on stocks returning more than bonds going forward.


That's quite a prediction! It sounds like you're betting on 30 years of low interest rates.

Regarding stocks vs bonds, the question isn't just the absolute performance but also the path they take. A pure stock portfolio has very high sequence of return risk.


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## agent99 (Sep 11, 2013)

james4beach said:


> A pure stock portfolio has very high sequence of return risk.


James, I have noticed that you mention sequence risk often. As I understand it, this mainly applies to retirees and has to do with the state of the market at time of retirement. The thinking being that if you retire at a bottom in market, you will have to sell off stocks at the worst time during the initial years, before the market recovers. This could be true for those who really haven't saved enough. Or have their investment in ultra safe low yielding securities and have to use their capital to live off. That is one reason why many of us retirees favour dividend paying stocks. The dividends usually get paid regardless of the state of the market.

If the retiree at end of a bear market only draws dividend and interest income and lives off that plus CPP/OAS, the stage the market is at is not so important. They may have to be frugal for a while, but it does not make sense to sell off their hard earned portfolio. Common sense hopefully prevails over theoretical sequence of return problems.

By the way, we retired in 2003 right at end of a bear market. It was a good time for us in that we only spent our income and watched our portfolio grow (except for a blip in 2008!)


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## james4beach (Nov 15, 2012)

Right, sequence of return risk only applies if you are drawing cash out of an investment portfolio. If the portfolio is just growing/reinvesting, then it's not a concern at all.

Drawing dividends out of a portfolio at the depths of a bear market is just as destructive as liquidating shares. I know others disagree with me about this, but after thorough study I'm quite confident in saying this.

It makes no difference whether you sell shares at the lows or extract cash in the form of dividends. Both expose you to sequence of return risk (depending on how much you take out). The mechanism of cash extraction makes no difference.

If it did make a difference, then all the SWR studies would say "but you can avoid all these portfolio depletion issues by just living off dividends"


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## 1980z28 (Mar 4, 2010)

High P/E

Yes

I am 100% dividend equities to date

Going forward I guess it will be higher so for most retired persons not much options out there

Picked up some RUF.UN and SO today 

I also own CSH.UN P/E is high


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## AltaRed (Jun 8, 2009)

Just for clarity, REITs, as an example, do not issue dividends. They issue distributions that contain a range of income types. I know that is picky but it is misleading to many readers. Income generating equities would be a better description.

Also, RE should not be analyzed on a P/E basis due to the skewing of amortization. Use FFO or better yet AFFO as a measure of robustness.


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## james4beach (Nov 15, 2012)

Good point about REITs.

I just feel anxious whenever a category of investments is _this_ popular. Try going through the forums and seeing how many new threads pop up with a dividend focus. As opposed to threads focusing on total returns and risk tradeoffs, which I would think would be the primary issue for investors.

The proliferation of income focused ETFs alone should be a warning sign.

I have no fundamental problem with dividends, but I worry about capital allocation decisions that are guided by the desire for dividends and not much else.


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## GreatLaker (Mar 23, 2014)

james4beach said:


> It makes no difference whether you sell shares at the lows or extract cash in the form of dividends. Both expose you to sequence of return risk (depending on how much you take out). The mechanism of cash extraction makes no difference.
> 
> If it did make a difference, then all the SWR studies would say "but you can avoid all these portfolio depletion issues by just living off dividends"





james4beach said:


> I just feel anxious whenever a category of investments is _this_ popular. Try going through the forums and seeing how many new threads pop up with a dividend focus. As opposed to threads focusing on total returns and risk tradeoffs, which I would think would be the primary issue for investors.
> 
> The proliferation of income focused ETFs alone should be a warning sign.
> 
> I have no fundamental problem with dividends, but I worry about capital allocation decisions that are guided by the desire for dividends and not much else.


Yes, thinking on this for a bit, current investment returns are obviously different than the returns that were experienced during the long time period that was studied by the Bengen and Trinity studies that resulted in SWR analysis that is often used to determine how much savings is needed to retire.

Dividend investors are saying "Hey no problem I can easily get 4% dividend return from my investments, and even higher if I focus on some high yielding equities. So I can easily get 4% or more income from my portfolio, dividends will easily grow faster than inflation and I can spend forever without even touching my principal".

On the other hand the SWR studies looked at decades long investment results starting in the 1920's and concluded that a 4% initial annual withdrawal, inflation adjusted yearly could be taken from a balanced (50 to 75% equity) portfolio with minimal chance of exhausting a portfolio over a typical 30 year retirement.

Historically 30 years was a very long retirement, but now with earlier retirement and longer lifespan, some retirees will easily live 30 years, and early retirees should build a plan that can last 40 years or more. Remember if you are funding your retirement from your own savings, 50% of retirees will live longer than average life expectancy, so if you plan you funds to last for an average lifespan you have a 50% chance of dying poor and hungry.

Recent investment returns are different than those that resulted in the SWR studies. So should we base our expectations for funding our 30 or possibly 40 year (and even longer for a few) retirement savings on current and recent past returns, or should we consider history and think that maybe some of the bad economic times that resulted in the recommendation for a 4% SWR could be repeated? Maybe this time really is different. Hmmmm....


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## Pluto (Sep 12, 2013)

frase said:


> Rightly or wrongly and excluding fixed income I invest almost exclusively in blue chip Canadian Dividend Paying stocks. Mostly banks and utilities with some of my larger holdings being RY,TD,CM, FTS,IPL,T, BCE. The annual dividends are generally in the 4% range but of course vary. Lately there seems to be lots of chatter that the PE's of these stocks are too high. However, to me it seems that in view of the current low interest rate environment (for which I do not see an end) that these PE's are not excessive. Again, speaking very generally, the dividends pay twice as much as fixed income and have favourable tax treatment. Just wondering if anyone has any comments.


I invest mainly in the same type of stock. 1) pay a dividend, 2) have tons of assets and reasonalbe debt, 3) solid customer base, 4) management not too goofy. 

Around Feb 2016 a good buying opportunity arose. the stuff I bought then is up 20 - 44%. The valuations right now are not too bad, but not as good as they were in Feb 2016. I have more cash that I put in short term bonds while I await a better buying opportunity. so I guess my view is that notwithstanidng low rates, decent buying opportunities do arise from time to time, and I'm going to wait.


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## Just a Guy (Mar 27, 2012)

jlivermore said:


> Regarding high P/Es, even though a p/e of 20 may seem high, you have to consider this in relation to the risk-free rate. So in the case of a p/e of 20, when you flip that e/p it gives a 5% yield. While that may be historically high, in comparison to the federal funds, overnight, or 30-year treasury rate, that is actually a pretty decent p/e.



So, what you're basically saying is...

Stocks are overpriced, we know they are overpriced. However, they pay out better right now than the alternative so it's okay to overpay...

That's greed talking, not intelligence.

What happens when people wake up and prices correct?

If something is overpriced, it's overpriced period. Those who try and justify why it's okay to be overpriced are those who eventually lose on the deal (probably why most people don't make very much money investing). The fools drive up prices, the investors profit. The market is basically a zero sum game, someone has to pay for someone else to gain.


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## Benting (Dec 21, 2016)

james4beach said:


> In my opinion, dividend stocks have become a "crowded trade". They have become ultra popular ever since central banks plunged us into the perpetual zero interest rate regime, around 2009.
> 
> Just looking through these forums shows this. Everyone has the same idea: abandon fixed income and get something fixed-income-ish using dividend stocks. The fact that this is such a popular and mainstream idea should itself be worrying. It means that a lot of capital has been chasing dividend paying stocks.
> 
> *Partly this stems from desperation in a low interest rate environment. It could be that the low interest rate environment lasts for the rest of our lives. However, if there's ever a reversal of this theme, and if higher interest rates return, then money could flow OUT of dividend stocks as they find better risk/return in fixed income*.


J4B you are exactly right !

There is a human factor involve here. If the dividend is more than twice of the interest rate, most of the people with GIC or bond would shift some or all (like myself) to dividend stocks. I know, I know (J4B)  dividend would cut into the capital. But look at all these stocks, despite pay out and still gain in values. Why, I definitely think some part of the reason is the low interest rate like you've said. I personally or some of the dividend lovers, would get rid some if the rate goes up to more than, let's say 3% ? Any chance it will happen in the near future ? Not likely for a while I think. In the meantime, I will enjoy this while I can. Look, I my broke my 5 years GIC ladder last 4 yr for RY. I have gained a lot against the GIC that I can take a hit still better off than GIC ! 

By the way, after I posted reply #4 here, I bought TD @ $*66.6*, 50%of my last rung of my 5 yr GIC ladder that matured yesterday. And, I see the Ex day of TD is on Apr.06. Will collect some *$$$$$$* in a month


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## GreatLaker (Mar 23, 2014)

Benting said:


> By the way, after I posted reply #4 here, I bought TD @ $*66.6*, 50%of my last rung of my 5 yr GIC ladder that matured yesterday. And, I see the Ex day of TD is on Apr.06. Will collect some *$$$$$$* in a month


And other things being equal, TD will drop on the April 6 ex-date, equivalent to the $.44 dividend it will pay on April 30. It does not always work out exactly that way because of simultaneous underlying changes in the market, or other news that may surface about TD. But in general, a stock dividend payout is offset by a drop in the stock on the ex-date.

http://www.theglobeandmail.com/glob...every-investor-needs-to-know/article19273251/



> It’s worth repeating that buying before the ex-dividend date doesn’t make you richer, and buying on or after the ex-dividend date doesn’t make you poorer. If that were the case, everyone would buy stocks just in time to pocket the dividend, then quickly sell them and move on to the next opportunity. Unfortunately, no such free lunch exists.


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## dotnet_nerd (Jul 1, 2009)

Just a Guy said:


> ... The market is basically a zero sum game, someone has to pay for someone else to gain.


No it's not a 'zero sum game'.

In a market where people trade baseball cards or comic books, sure that's true. That's a fixed-sized pie who's total sum will never grow.

But stocks are shares of viable businesses that generate cash from profitable operations. It's a _non-zero_ sum game because value is constantly being created.


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## OptsyEagle (Nov 29, 2009)

If it were a zero sum game the index would equal zero.


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## GreatLaker (Mar 23, 2014)

It's a zero-sum game among all investors in a market, before costs.

If the market goes up 10% in a year then the weighted average of all investor returns, before costs, will be 10%. Some will do better, some will do worse. For an investors to beat the market, other investor(s) have to underperform the market. Remember there is someone else on the other side of your order, and both of you think it's a good trade. So all you have to do is be a better trader then the person on the other side, even if that person is an experienced professional trader with access to much better more up-to-date information. What could be easier?

William Sharpe's The Arithmetic of Active Management explains it well.

And where people trade collectibles like comic books or baseball cards, the overall value of all comic books or cards may go up too. The difference is that over the long term, stock returns are driven by advances and efficiencies of companies and products creating long-term value, whereas collectibles don't do that so the long-term value is based more on rarity and buyer's sentiments.


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## birdman (Feb 12, 2013)

Further to my OP I guess what I am trying to determine is the relationship between PE's, Divy %, and stock price compared to the interest rate scenario at the time. I could only go back to the year 2000 when interest rates were higher. I am guessing the prime rate was around 6-7% that year. At that time I estimated the divy on CM to be in the 4.8% area which is not that far from todays return of 4.3% but at a 2.7% prime rate. Is it safe to conclude that the price of a blue chip stock similar to those mentioned in my OP ( eg. T/D, RY, CM, T, BCE, IPL, TRP, FTS, etc) have any relationship to the current interest rates? From what I have been able to determine the answer is "no". It would have been nice to see the relationship in the early to mid 1980's when prime hit 22.75%, longer term mortgages were maybe around 17%, and deposit rates correspondingly high with 5 yr G/c's about 18%. Anyone have any thoughts?


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## mark0f0 (Oct 1, 2016)

frase said:


> Further to my OP I guess what I am trying to determine is the relationship between PE's, Divy %, and stock price compared to the interest rate scenario at the time. I could only go back to the year 2000 when interest rates were higher. I am guessing the prime rate was around 6-7% that year. At that time I estimated the divy on CM to be in the 4.8% area which is not that far from todays return of 4.3% but at a 2.7% prime rate. Is it safe to conclude that the price of a blue chip stock similar to those mentioned in my OP ( eg. T/D, RY, CM, T, BCE, IPL, TRP, FTS, etc) have any relationship to the current interest rates?


Certainly the underlying businesses can be very sensitive to interest rates, especially the financials for which falling interest rates have produced outsized returns through balance sheet and lending expansion. 

In other instances, falling interest rates and deflationary trends have damaged the businesses. The telecoms come to mind in particular, but pipelines as well. 

So the falling interest rates seen 2000-recently, have boosted earnings on the banks, but damaged earnings growth of other firms. Thus making an arbitrary relationship hard to derive. Dividend stocks that, for instance, benefit from the low rates, may very well be 'expensive' today if rates go higher and higher rates eat away at the earnings of those firms. Or likewise, firms that look 'expensive' today may actually be very cheap in a higher rate environment. 

Overall market P/E ratios are beneath historically normal averages for the Canadian stock market generally, and we know from the 1970s that the Canadian market will outperform the US market in periods of long-term rising interest rates, and underperform the US market in periods of falling long-term interest rates (seen in the 90s and 2000s!).



> From what I have been able to determine the answer is "no". It would have been nice to see the relationship in the early to mid 1980's when prime hit 22.75%, longer term mortgages were maybe around 17%, and deposit rates correspondingly high with 5 yr G/c's about 18%. Anyone have any thoughts?


P/E multiples were generally single digits back then, but there was higher multiples in sectors like the gold miners, as there was anticipation of further gains in gold and energy prices. Of course, in hindsight, that was a bubble that took decades to liquidate.


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## Pluto (Sep 12, 2013)

frase said:


> Further to my OP I guess what I am trying to determine is the relationship between PE's, Divy %, and stock price compared to the interest rate scenario at the time. I could only go back to the year 2000 when interest rates were higher. I am guessing the prime rate was around 6-7% that year. At that time I estimated the divy on CM to be in the 4.8% area which is not that far from todays return of 4.3% but at a 2.7% prime rate. Is it safe to conclude that the price of a blue chip stock similar to those mentioned in my OP ( eg. T/D, RY, CM, T, BCE, IPL, TRP, FTS, etc) have any relationship to the current interest rates? From what I have been able to determine the answer is "no". It would have been nice to see the relationship in the early to mid 1980's when prime hit 22.75%, longer term mortgages were maybe around 17%, and deposit rates correspondingly high with 5 yr G/c's about 18%. Anyone have any thoughts?


About July 1981 rates had peaked (US 10 year bond was about 15.8%), and by April '82 stock prices were much lower. Higher rates depress values of all assets - stocks, bonds, real estate, fine art, comodities, whatever. These days there isn't much reason for rates to go up much in a short time. Even so, stocks will correct eventually. 
a rough rule of thumb for me is bank p/e's. If they are 13-14 it's too high and I won't buy. Around 11 is good. Below 10 is a rare bargin. Last time I checked we seem to be in a bit of a manic-euphoric state. Not super obvious or pronounced, but it's there. I'd like to see some pessimism before I go into buying mode again.


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## Eclectic12 (Oct 20, 2010)

james4beach said:


> In my opinion, dividend stocks have become a "crowded trade". They have become ultra popular ever since central banks plunged us into the perpetual zero interest rate regime, around 2009.
> 
> Just looking through these forums shows this. Everyone has the same idea: abandon fixed income and get something fixed-income-ish using dividend stocks. The fact that this is such a popular and mainstream idea should itself be worrying. It means that a lot of capital has been chasing dividend paying stocks.
> 
> Partly this stems from desperation in a low interest rate environment ...


Sure ... but it also ignores that with articles in the 1990's about how a ten dividend paying stock portfolio was mostly beating the TSX - there's more a play then just the 2009 interest rate changes.

There's also all the changes in commissions ($200 down to $6.95) that have also changed the landscape.

Cheers


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## birdman (Feb 12, 2013)

Pluto said:


> About July 1981 rates had peaked (US 10 year bond was about 15.8%), and by April '82 stock prices were much lower. Higher rates depress values of all assets - stocks, bonds, real estate, fine art, comodities, whatever. These days there isn't much reason for rates to go up much in a short time. Even so, stocks will correct eventually.
> a rough rule of thumb for me is bank p/e's. If they are 13-14 it's too high and I won't buy. Around 11 is good. Below 10 is a rare bargin. Last time I checked we seem to be in a bit of a manic-euphoric state. Not super obvious or pronounced, but it's there. I'd like to see some pessimism before I go into buying mode again.


I guess the problem I am having and contrary to what you suggest is that during the high interest rates of the early 1980's the share price of the 2 stocks I checked (FTS and RY) actually increased despite money market rates of say 12 to 16% or thereabouts. From this can one conclude that an increase in interest rates has no material effect on the price of a stock? I would have thought that if one was receiving a 4% divy and shorter dated term deposit or bond rates were in the 12-16% range investors would sell their shares and invest in the money market. This does not seem the case.
http://quote.morningstar.ca/Quicktakes/Stock/s_ca.aspx?t=RY


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## humble_pie (Jun 7, 2009)

GreatLaker said:


> It's a zero-sum game among all investors in a market, before costs.
> 
> If the market goes up 10% in a year then the weighted average of all investor returns, before costs, will be 10%. Some will do better, some will do worse. For an investors to beat the market, other investor(s) have to underperform the market. Remember there is someone else on the other side of your order, and both of you think it's a good trade. So all you have to do is be a better trader then the person on the other side, even if that person is an experienced professional trader with access to much better more up-to-date information. What could be easier?




indeed what could be easier than a solipsistic answer?

that stock markets are *not* a zero-sum game has just been explained in two excellent posts numbered 26 & 27 upthread.

here's another reason why stock markets do not sum the zero. Central banks increase or fail to increase the money supply at unpredictable rates & at unpredictable times. In the US, every cough, every heard comma, every intake of breath by a federal reserve governor can & does rocket the market up or else collapse it back down again.


.


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## Oldroe (Sep 18, 2009)

James missed a 350% increase in bank stocks.

Do you get the picture.


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## Eclectic12 (Oct 20, 2010)

mark0f0 said:


> Certainly the underlying businesses can be very sensitive to interest rates, especially the financials for which falling interest rates have produced outsized returns through balance sheet and lending expansion.
> 
> In other instances, falling interest rates and deflationary trends have damaged the businesses. The telecoms come to mind in particular, but pipelines as well ...


I wonder which POV dominates ... they all pay dividends so are they all high risk, over valued in a crowded market?
Or does the damage done mean there's variation?


Cheers


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## Eclectic12 (Oct 20, 2010)

Oldroe said:


> James missed a 350% increase in bank stocks ...


Limits on what was put into the index ... sure, there's some growth missed. I don't think it was completely missed out on as I believe he's had a schedule of buys.


It is hard to tell though as on one hand, he's okay with dividends per se but on the other hand, there's a lot of fretting goin' on ... :biggrin:


Cheers


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## GreatLaker (Mar 23, 2014)

humble_pie said:


> indeed what could be easier than a solipsistic answer?
> 
> that stock markets are *not* a zero-sum game has just been explained in two excellent posts numbered 26 & 27 upthread.
> 
> ...


Indeed what could be more fun than using big words to post a rebuttal that demonstrates you misunderstood someone's post.

If you read the William Sharpe article to which I linked you will understand that "investing is a zero-sum game" means that while markets can move up and down, investors' return in aggregate, before costs, must equal the market return.


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## Pluto (Sep 12, 2013)

frase said:


> I guess the problem I am having and contrary to what you suggest is that during the high interest rates of the early 1980's the share price of the 2 stocks I checked (FTS and RY) actually increased despite money market rates of say 12 to 16% or thereabouts. From this can one conclude that an increase in interest rates has no material effect on the price of a stock? I would have thought that if one was receiving a 4% divy and shorter dated term deposit or bond rates were in the 12-16% range investors would sell their shares and invest in the money market. This does not seem the case.
> http://quote.morningstar.ca/Quicktakes/Stock/s_ca.aspx?t=RY


Evidently you have picked two that didn't represent the general market at the time. I was looking at the index, a more represetative sample of stocks. RY also chugged right through the 2000 bubble and bust as if it were not happening. It doesn't mean that assets in general are not impacted negativly by rising rates. And it does not mean that stocks don't correct from time to time. 

Around 2014 I enquired on this forum about why enbridge had a +20 p/e when its growth rate did not really justify it and it's yield was 3.? The consensus answer was that was normal, don't worry be happy. Didn't make sense to me and I didn't buy until winter 2016 when the yield neared 6%. To me it is not normal to pay 50+ for enb, for example, then within less than 2 years have a 40% paper loss and a 3% yield. I'm happy getting 3% on short term bonds until stocks make good sense. So although fts and ry bucked the trend in early 80's, stocks do correct from time to time, and to me as a buyer it is better to buy when prices are falling, and as a seller, it is better to sell into a strong rising market. I prefer to buy when the odds of me having a prolonged paper loss is low. 

Right now the market just seems a tad over priced. It can easily correct 10% or more for no apparent reason, and with no obvious warning. that could put me in a buying mood.


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## james4beach (Nov 15, 2012)

Oldroe said:


> James missed a 350% increase in bank stocks.


I had plenty of bank exposure through XIU.

Oldroe, you get awfully grumpy when I criticize bank stocks. Why is that?


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## Oldroe (Sep 18, 2009)

Lies ! Crafting well written lies. Relating RY Canada to Ry Ireland to US banks.

You have wrote them all and not come up with a ligament argument yet. I don't think i'm grumpy. Just a good investor.


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