# Moneysense Top 100 Dividend Stocks for 2018 by Norm Rothery



## milhouse (Nov 16, 2016)

Any thoughts on Moneysense's top 100 dividend stock list for 2018 by Norm Rothery?

Their A grade stocks are essentially all financials/lifecos: BMO, CIBC, Great West Life, Power Corp, Power Financial, Sun Life, and TD. 

Their list is obviously skewed by their ranking methodology which favours:
Companies that earn more than they pay out in divvies
Companies with lower debt
Companies with better P/B and P/E ratios.

Even the B grade stocks are primarily financials with some other sectors starting to appear with Fortis, Magna, Suncor, etc. 
Kind of interesting to see of the bigger names you typically associate with dividends having C and D grade ratings, though likely due to high debt and payouts: BCE, Telus, Shaw, Enbridge, Transcanada, CN, etc.


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## Rusty O'Toole (Feb 1, 2012)

The fact that the most profitable companies are financials is scary but not surprising.


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## like_to_retire (Oct 9, 2016)

_The very best get an A. Good candidates land a B while solid firms get a C. Stocks that lack these qualities take home a D...._

CNR, METRO, SAP all got a D? 

Crazy.

ltr


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## james4beach (Nov 15, 2012)

Rusty O'Toole said:


> The fact that the most profitable companies are financials is scary but not surprising.


I'm not surprised either. The post-2008 conditions have been terrific for financials. We have QE and low interest rate stimulus (which is hugely beneficial for banks) combined with aggressive credit expansion in Canada during a housing boom. These are optimal conditions for the financial sector.

It's not much of an accomplishment to do well when you're getting pumped full of government stimulus. It would be shocking if the banks _did not_ benefit from this environment.

The question is, what happens when that stops? Once stimulus stops, credit contracts, or housing falls, everything will change. Even if Canadian housing remains strong, but if global stimulus & credit contracts, the Canadian banks will be in big trouble.


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## Rusty O'Toole (Feb 1, 2012)

I was wondering how long an economy can survive without an industrial base. Can we live on borrowed money forever? Can we prosper by selling each other hamburgers and insurance?


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## Eder (Feb 16, 2011)

james4beach said:


> the Canadian banks will be in big trouble.


The market seems to disagree. Norm is smarter than most.


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## Eder (Feb 16, 2011)

Rusty O'Toole said:


> I was wondering how long an economy can survive without an industrial base. Can we live on borrowed money forever? Can we prosper by selling each other hamburgers and insurance?


Looks like our JT is willing to find out.


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## humble_pie (Jun 7, 2009)

Rusty O'Toole said:


> I was wondering how long an economy can survive without an industrial base. Can we live on borrowed money forever? Can we prosper by selling each other hamburgers and insurance?




switzerland is thriving on a finance based economy

export revenues based on cheese & chocolate ceased to be important a century ago. Even hallmarked swiss precision engineered machinery is a smaller component of GDP than in the decades prior to WW II, although still respected the world over.

tourism is still doing ok in the independent swiss cantons, but federally swiss banks & insurance companies bring home the bacon.

here in canada we are luckier than the alpine federation because we still have massive natural resources. O & G may be down for the time being but they're not out for good. The north is studded with orebodies.

we export forest products. We could grow hemp plants for their superb fibres. These annual plants could replace trees as sustainable sources for pulp & paper. Hemp fibres also form excellent textiles, they are stronger than linen & certainly much stronger than fast-wasting cotton fibre.

never mind the current frivolity over recreational hemp, where is the interest in growing the non-cannabinoid species of this plant for its cheap longlasting fibre. Our northern climate is perfect.


.


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## james4beach (Nov 15, 2012)

Eder said:


> Looks like our JT is willing to find out.


What are you talking about? Manufacturing has been on the decline since at least the 1980s and happened across all western economies; it has nothing to do with Trudeau in particular. The same goes for government debts; it's up across all the nations and started rising in the 1980s.

https://static01.nyt.com/images/2011/12/26/opinion/122611krugman1/122611krugman1-blog480.jpg

There were many Republican and Conservative heads of state while this happened. This isn't about one current prime minister... these are long term economic themes. In Canada, debt has increased under Conservatives too, and was also reduced under Liberals. The party really makes no difference:

https://nationalpostcom.files.wordpress.com/2011/03/gdp.jpg


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## gibor365 (Apr 1, 2011)

I hold 21 out of 100, majority in top section... interesting that even 1 REIT wasn't on this list


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## Eder (Feb 16, 2011)

..


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## fatcat (Nov 11, 2009)

https://beta.theglobeandmail.com/gl...lear-of-canadian-bank-stocks/article36377204/

this fund manager holds no banks ... but ... says he will buy banks again ... hmmm



> *What do you have against owning Canadian banks*
> 
> It's not that we hate banks. They are an oligopoly, and historically have generated very good shareholder returns and return on equity. But we see risks in drivers of bank profitability – whether in overall loan growth, rising consumer debt or elevated housing prices. If things get challenging and housing prices fall, a lot of consumers could face financial trouble. The amount of capital that banks need to hold would rise to absorb loan losses, and that can hurt profits. But Canadian banks also need to re-engineer their business model as technology shifts to banking online from branches. We are not predicting Armageddon, but we think there are more headwinds than tailwinds. At the right time down the road, we likely will own banks.


i have always been more worried about what he calls re-engineering, i.e. what will be the impact of fin-tech ? ... though the case could be made that the banks will simply start to buy all the promising fin-tech startups and we will see them rolling out products that are designed for the current environment rather than giant, lumbering, legacy codebases that many of us hate

there are headwinds and tailwinds and he is going to buy again so he appears to be just playing a timing game

this fund would be good for james


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## james4beach (Nov 15, 2012)

It sounds like many of you bank shareholders don't realize that your shares were basically worthless at times during the financial crisis. The share prices bounced back, yes, but the equity in some of these companies was worth zero at one point.

Assets = Liabilities + Equity

And for BMO, CIBC and I believe Scotiabank (briefly), liabilities exceeded Assets. Their equity value was worthless and your bank shares were worthless. They just happened to be trading at +999% or whatever premium, so you didn't notice.

The zero-valued equity bounced back this time. Don't count on this always happening.


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## Jimmy (May 19, 2017)

james4beach said:


> It sounds like many of you bank shareholders don't realize that your shares were basically worthless at times during the financial crisis. The share prices bounced back, yes, but the equity in some of these companies was worth zero at one point.
> 
> Assets = Liabilities + Equity
> 
> ...


The share value is the expected PV of the future cash flows and has little or nothing to do w the temporary position of the balance sheet ( so long as the company can meet its debt obligations) . A temporary recession factors only into the effect it has on current and future earnings which are computed into its share price.


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## james4beach (Nov 15, 2012)

Except that the balance sheet wasn't just instantaneously in that position, it lasted quite a long while. And the banks released inaccurate financial statements during that time, *misleading* shareholders about the financial status of the company. Misrepresenting your financial condition, especially when the numbers are material, is a crime.

I consider that fraud and I think heads should roll, but nobody has made a peep of it. Even the Finance Minister celebrated the "strength" of the Canadian banks and pretended like this never happened.

When situations like this happen to public companies in any other sector, the law comes down hard on them -- accounting fraud, management fraud, and the companies go bankrupt. We've seen countless other companies vaporize in the same situation. However when it happens with banks, everyone turns a blind eye.

I don't trust the financial reporting from the banks. You guys might trust those quarterly reports, but I don't... they have already proved that the numbers can be fictitious for many quarters on end.


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## Benting (Dec 21, 2016)

Hmmm..... Groundhog Day again. Haven't we heard this song again and again before ? First, it was the oil crises. The oil prices went down from $150 to less than $50. A lot of people saying it would bring down the Banks ? And then, it was the housing bubbles. How long these have been going on ? On the contrary to all these warning, or speculation, the banking sector has performed nicely. Granted, one of this day it may crash or it may never, who knows. Even with a crash, those of us who riding the tail wind for a while would take a hit with minimal damage. If you can stomach the hit and ride it out. Banking sector would be the first to get out the crash with flying colour.

CM is grade A while RY is C ? I had CM before and it sucks compared to TD or RY. May be I should sell some TD and RY to get this CM back a bit. 5% divy is great and it may have a good chance the stock will be split in the next report.

Happy Thanksgiving Day !


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## fplan (Feb 20, 2014)

james4beach said:


> Except that the balance sheet wasn't just instantaneously in that position, it lasted quite a long while. And the banks released inaccurate financial statements during that time, *misleading* shareholders about the financial status of the company. Misrepresenting your financial condition, especially when the numbers are material, is a crime.
> 
> I consider that fraud and I think heads should roll, but nobody has made a peep of it. Even the Finance Minister celebrated the "strength" of the Canadian banks and pretended like this never happened.
> 
> ...


That's why I feel scary about couch potato portfolio as well.. 20% allocation to Canada means almost 7% allocation to banks..so nobody will be spared..


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## birdman (Feb 12, 2013)

James, you are correct that:

Assets = Liabilities plus equity

That statement is true for most businesses but not it has a different interpretation for F/I's. Assets for a bank are its LOANS and its liabilities are its DEPOSITS plus equity. Of course the 2 equal each other. The reverse is true for other companies. Respectfully suggest you revisit things and it may change your interpretaion of bank solvency and equity.


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## Jimmy (May 19, 2017)

frase said:


> James, you are correct that:
> 
> Assets = Liabilities plus equity
> 
> That statement is true for most businesses but not it has a different interpretation for F/I's. Assets for a bank are its LOANS and its liabilities are its DEPOSITS plus equity. Of course the 2 equal each other. The reverse is true for other companies. Respectfully suggest you revisit things and it may change your interpretaion of bank solvency and equity.


Good pt. Banks actually have little debt. They don't need to borrow because they have everyone's deposits to use for investments or as security against their loans which are income earners. Their risk is making bad loans or holding risky assets like subprime mortgages and MBS.


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## james4beach (Nov 15, 2012)

All of these points are true (that their assets are made up of loans) but that doesn't change what I said earlier... they released incorrect balance sheets that misrepresented their financial state.

There's no problem with having loans and liabilities etc, but they have to be correctly stated so that investors can make informed decisions. When a company hides the fact that they have taken large loans, they are lying to investors. The banks took on big loans and did not disclose them.

If one of these banks had collapsed, you would have seen the largest class action lawsuit in Canada's history, with shareholders and depositors lining up to sue the executives and accounting firms for failing to disclose that they were carrying massive 'emergency' loans. If the shareholders had known about those loans, they may have made different decisions. The banks received giant loans from the Federal Reserve and Bank of Canada that just were not disclosed -- it's fraud.


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## gibor365 (Apr 1, 2011)

> I had CM before and it sucks compared to TD or RY. May be I should sell some TD and RY to get this CM back a bit.


 I very doubt that CM sucks comparedto TD! Sinse Victor became CEO , this is the most undervalued and most promissing bank imho


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## birdman (Feb 12, 2013)

James, you mention in a negative way that liabilities exceeded assets with some of the banks. That would be a good thing as the liabilities (primarily deposits and equity) exceed the loans and investments which are the main assets. Going away for a few days so will be exiting this thread.


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## james4beach (Nov 15, 2012)

frase said:


> James, you mention in a negative way that liabilities exceeded assets with some of the banks. That would be a good thing as the liabilities (primarily deposits and equity) exceed the loans and investments which are the main assets. Going away for a few days so will be exiting this thread.


From my understanding of accounting, "equity" is what you have left over after you subtract liabilities from assets. What would you have if you closed out the assets & liabilities?

With my interpretation, there is nothing good about liabilities equaling/exceeding assets. The effect is that the equity shrinks and disappears -- no equity is left. Some illustration of this is given here:

http://positivemoney.org/how-money-works/advanced/how-do-banks-become-insolvent/


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## Jimmy (May 19, 2017)

Our banks didn't have toxic assets like subprime mortgages and were never under threat of having -ve or no equity. Most mortgages up here are insured by CMHC anyway who are back stopped by the govt. During the crisis the CMHC even bought up some risky mortgages from the banks using loans from the govt just in case. Program ended in in 2010 w CMHC repaying the loans. Maybe that is what you were thinking about. The leftist nonsense group CCPA tried to call it a 'bail out' lol

http://www.cbc.ca/news/business/banks-got-114b-from-governments-during-recession-1.1145997


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## lonewolf :) (Sep 13, 2016)

Jim the government can not stop the breathing of inflation & deflation in fiat system. Deflation is less often but it will show up


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## Benting (Dec 21, 2016)

Hummm, enough of these doom and gloom ideas ! Let's get positive.
Looks like all the banks are riding with strong tail wind lately. TD and NA have already broken the all time high record. Others may follow soon before the 3rd quarter report. TD will probably raise dividend. RY, BMO and CM will have a chance of 2 for 1 split.


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## birdman (Feb 12, 2013)

james4beach said:


> From my understanding of accounting, "equity" is what you have left over after you subtract liabilities from assets. What would you have if you closed out the assets & liabilities?
> 
> With my interpretation, there is nothing good about liabilities equaling/exceeding assets. The effect is that the equity shrinks and disappears -- no equity is left. Some illustration of this is given here:
> 
> http://positivemoney.org/how-money-works/advanced/how-do-banks-become-insolvent/


Got home early. James, what you say is fine but try to think how it applies to F/I's. Keeping it simple, their main asset are loans and their main liability are deposits. Of course the difference is the equity. OK, we are fine to here. Now, what happens if deposit(s) (liabilities) somehow increase by say 10%? Are you saying that is negative? The answer is no, its fine, as the F/I simply uses the funds by investing it in other assets, not necessarily, but perhaps G/C Bonds, commercial paper, or whatever, and the balance sheet stays in balance eg. assets(loans and investments) minus the liabilities equals equity. The main thing that can effect F/I's are operating losses which of course reduce equity, more specifically retained earnings. F/I's have large swings in their balance sheets and managing this is a chore. Deposits are relatively simple to obtain by simply increasing deposit rates but that has a negative impact on profitability. If you have too many deposits (liabilities) it is difficult to lower rates to below market as you put your customer loyalty in jeopardy. I believe they keep around 12% liquidity and when I was in the business our target liquidity was 12-14% and we were required to have a minimum of 10%. Mind you, we had significant credit lines to replenish our liquidity if required. This is where the Bank of Canada steps in and in cases of a run on deposits they step in and provided needed liquidity to the banks. I never experienced or heard of the need for this but perhaps you referred to this in some of your previous posts that they got money from the government. Although this seldom happens it is the way the system works and the loan from the Bank of Canada is not for operating losses or equity drain but simply to provide liquidity in emergencies. Its just another deposit (liability).
I don't really want to get into trying to interpret every line on the banks financial statements but as I have mentioned before they have my full confidence. I know you have a different opinion but can't help feeling you may be on the wrong track. On the other hand maybe its me but I don't wish to try to analyze it any further and am comfortable with my F/I investments. Suggest we don't debate this further.


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## james4beach (Nov 15, 2012)

Thanks for the details, I will study what you wrote, but I also don't intend to debate this further as it's really off topic on the thread. (We might start a thread dedicated to bank capitalization and bank health).

But my primary concern was sector allocation. Sure, bank stocks may look good on these dividend metrics, and let's assume they are rock solid businesses. But I think an investor should be cautious about taking excess exposure _to any sector_.

Financials are only 17% of the S&P 500, and 18% of VT (global index). And yet they are 40% of the TSX60 and even higher in some common portfolios such as dividend-heavy funds and some retirees portfolios. XDV is 58% financials! That's not safe -- I would say that no matter what the sector was.

I hold bank shares too, but keep it under 20% exposure.


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