Commodity prices spur surge
Author of the article:
Bloomberg News
Geoffrey Morgan
Published Jun 23, 2023 • Last updated 1 day ago • 2 minute read
A sign board displaying Toronto Stock Exchange (TSX) stock information in Toronto. Photo by Mark Blinch/Reuters The S&P/TSX Composite Index is offering the biggest payout ever relative to the S&P 500 Index as high commodity prices spur a record surge in Canadian buybacks and dividends.
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Access articles from across Canada with one account. Share your thoughts and join the conversation in the comments. Enjoy additional articles per month. Get email updates from your favourite authors. “This is the most attractive relative yield the TSX has ever had vis-a-vis the S&P 500,” Canadian Imperial Bank of Commerce head of portfolio strategy Ian de Verteuil said in an interview on June 23. “Outside of the last three or four years, the TSX has never had a payout yield close to the S&P 500.”
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S&P/TSX Composite-listed stocks are currently offering a 5.4 per cent payout yield on a combination of “ratcheted up dividends” and a “buyback craze,” de Verteuil wrote in a note to clients.
That’s more than 100 basis points higher than the yield on the S&P 500 — a record divergence between the two stock indexes, CIBC says.
Boosted by higher energy, fertilizer and metals prices, total payouts including dividends and buybacks by S&P/TSX-listed firms reached a record $170 billion over the last 12 months, CIBC calculated.
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Stocks in Toronto have offered heftier dividend yields since 2005, according to data compiled by Bloomberg. The U.S. market, by contrast, has consistently offered investors bigger returns via share buybacks.
But now, buybacks are surging in Canada, partly due to an incoming two per cent tax on them, CIBC notes, pushing the yield advantage in Canadian stocks to record levels.
To be sure, de Verteuil sees “the current extravagant buyback level” as unsustainable, especially as oil prices fall amid recession concerns and flagging demand from China. CIBC expects the total S&P/TSX-listed firms payout in dividends and buybacks to fall to $140 billion over the next year, bringing the payout yield down to 4.4 per cent.
That would still be above levels in the U.S., according to CIBC, which would mark a historic divergence as the S&P 500 yield has surpassed that of the S&P/TSX Composite for most of the last 25 years.
Recommended from Editorial Bank of America says investors are fleeing tech stocks after ‘baby bubble’ Treasury investors bet on U.S. falling into recession The bear market could be dead or perhaps (shh) it’s only sleeping “We believe Canadian investors should still expect payouts to remain above four per cent, unless a severe recession develops,” de Verteuil said.
Bloomberg.com