Here’s an idea to enrage any red-blooded American…
It’s sell America and buy Canada.
But it’s OK.
It doesn’t mean trading in a Biden for a Trudeau (a perfect, dictionary definition of a dilemma if ever we’ve seen one).
Instead, the idea comes from Bank of America analyst, Ohsung Kwon.
He says investors can get twice the dividend yield in Canadian stocks, compared to U.S. stocks.
So, does it really make sense to “buy Canadian” for your next stock trade?
We’ll give our take below. First, let’s see how the markets treated investors today…
Market Data
The S&P 500 closed up 0.2% to end the day at 4,954.23… the NASDAQ gained 0.1% to close at 15,609.
In commodities, West Texas Intermediate crude oil trades at $73.48, up 62 cents…
Gold is $2,051 per troy ounce, up $10…
And bitcoin is $43,186, up $797 since yesterday.
Now, back to our story…
Buy Canada?!
Buy Canada, says Ohsung Kwon, an analyst at Bank of America.
Here’s what he wrote in a research note he shared yesterday:
Own dividends, own inflation, own Canada. 2024 could be a banner year for dividends as cash yields drop and a global recovery cycle lifts beaten-down high-dividend stocks.
Ah, so it’s not just buy Canada, it’s buy higher yield – a joy to the ears, we’re sure, of Stephen Hester. Stephen is the high-yield man at Wide Moat Research’s High Yield Advisor.
If you recall from our Report Card series, Stephen recorded an excellent A- grade. He had a perfect win rate from his recommendations. And he beat the weighted return of the benchmark high-yield index.
Of course, with high yields, there’s always a word of caution. The type of stocks Stephen looks at do tend to be higher risk.
That’s usually (but not always) the payoff for achieving a higher yield.
So how do U.S. dividend stocks, on average, stack up against Canadian dividend stocks?
Just looking at the two main indexes, the S&P 500 pays a dividend yield of 1.4%. Compare that to Canada’s S&P/TSX Composite index, which pays a yield of 3.2%.
Seems to be a proverbial open-and-shut case.
But don’t rush out to buy the iShares MSCI Canada ETF (EWC) just yet. For one, it only yields a forecast 2.7%.
Second, while the S&P 500 overall has a paltry 1.4% yield, that doesn’t mean there aren’t decent yields among U.S. stocks.
A quick glance at several of the stocks among our entry-level advisories proves that.
Our Palm Beach Letter publication includes a utility company that has either maintained or increased its dividend every year since at least 1980.
It currently yields 4%. An investor who bought stock in that company in 2000 and who still holds it would be earning a 22% income from their initial investment.
The Distortion Report newsletter holds a $47 billion energy services company. It’s on a current forecast yield of 9%. Its dividend has been more volatile. It cut it in half at the end of 2020.
Now, the dividend is back to where it was before that cut.
And even the Near Future Report has gotten in on the dividend act… in its own way. It too has recommended a utilities play. This time to benefit from the growth of data centers, which draw large amounts of energy from the grid.
This utility has a market cap of a touch under $40 billion and yields 6%. It, too, has a great dividend track record. Although it hasn’t yet returned to the pre-Covid era payouts.
Homegrown Stocks Paying Good Income
In short, it’s possible to get great dividend yields from home-grown American stocks. That’s not even mentioning stocks like Verizon Communications (VZ), Pfizer (PFE), Altria (MO), and AT&T (T), all of which pay better than 6% yields.
That’s twice what you’ll get from the Canadian index… and you’re investing in companies you know.
Furthermore, the urge to go offshore for American investors, for the most part, doesn’t make sense. Data consistently shows that many of America’s biggest companies derive more than 40% of their revenues from overseas.
A report in 2017 from the Foundation for Economic Freedom showed that 73% of Proctor & Gamble’s (PG) revenues were non-U.S.
It showed that 87% of Alphabet’s (GOOG) revenue came from overseas. It was 64% for General Electric (GE) and 58% for Intel (INTC).
Overall, a 2020 report from Goldman Sachs showed that for S&P 500 companies, 29% of revenue came from overseas.
So unless you’re planning to allocate more than that to an overseas portfolio, you likely already have international exposure.
Besides that, getting back to the point on income, using the S&P 500 as a gauge for yields is not entirely relevant anyway.
Tech stocks account for around one-third of the S&P 500. Typically tech stocks are among the worst dividend-payers on the market.
So the short answer to the question of “buy Canada and Sell America” is… likely, no.
If you want great yields, you can get that at home, and several of our entry-level and premium-level services do the research to let you know which are best.
Legacy Inner Circle
If you subscribe to Legacy Inner Circle, a publication that highlights the best of our research, and highlights experts outside Legacy, you get access to a curated portfolio.
Most of the picks focus on growth. But one pick, a pharmaceutical company, currently yields 4.8%. Another, a miner, yields 3.4%.
And a third, an oil-and-gas producer, yields 3.3%. There are Canada-beating yields without any need to cross the border!
More Markets
Today’s top gaining ETFs…
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KraneShares MSCI China Clean Technology ETF (KGRN) +7.6%
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VanEck ChiNext ETF (CNXT) +7.6%
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Invesco China Technology ETF (CQQQ) +7.1%
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KraneShares MSCI All China Health Care Index ETF (KURE) +7%
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Global X MSCI China Consumer Discretionary ETF (CHIQ) +6%
Today’s biggest losing ETFs…
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Invesco Semiconductors ETF (PSI) -1.4%
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iShares Semiconductor ETF (SOXX) -1.2%
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First Trust Nasdaq Semiconductor ETF (FTXL) -1.1%
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VanEck Semiconductor ETF (SMH) -1.1%
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SPDR S&P Semiconductor ETF (XSD) -0.9%
Mailbag
If you have any questions or comments for our experts here at Legacy Research, we’d love to hear from you.
Write to us at [email protected] and just type “Daily Cut mailbag” in the subject line.
Cheers,
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Kris Sayce
Editor, The Daily Cut