Rebounding economy should boost dividends

By Mark Burgess | March 17, 2021 | Last updated on November 29, 2023
3 min read
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The pandemic’s early months were harsh for dividend investors, with many companies cutting or suspending payouts to investors in order to reduce costs and maintain cash flow. As the economic outlook improves, portfolio manager Craig Jerusalim sees dividends increasing again in certain sectors.

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“Three sources of dividend growth that I see on the TSX come from banks, telcos and gold: bank stocks tied to the resumption of economic growth, telcos as a misunderstood and underappreciated sector, and gold [as] an unloved and often overlooked area,” said Jerusalim, senior portfolio manager at CIBC Asset Management.

The caveat with banks is the Office of the Superintendent of Financial Institutions’ (OSFI) ban last March on dividend increases and share buybacks, along with other measures to ensure the sector’s stability.

In January, OSFI head Jeremy Rudin said the regulator would need “a substantial reduction in the uncertainty … and we would want to be confident that there is not a second, pandemic-induced setback for the economy before we could give serious consideration to lifting the restrictions.”

Jerusalim said that time could come in the second half of this year. He pointed to housing market strength boosting banks’ mortgage businesses, strong capital markets and equity market outperformance lifting asset management.

“Banks likely won’t release provisions that they took during the depths of the Covid crisis,” he said in an interview last month. “But at some point it will become a tailwind given the healthy capital level well above the required minimum levels needed for OSFI to lift that moratorium.”

Canada’s six big banks reported first-quarter profit gains between 3% and 26% year over year, and combined net income of $15 billion, up from $13.3 billion in the same quarter last year.

Jerusalim said Canadian telecommunications companies don’t get the respect they deserve, despite offering vital services he compared to electricity or water.

“They don’t come close to the valuation multiples of the utilities or even the pipelines,” he said. “Under normal circumstances, let alone under these extreme periods of work from home, I would sooner give up my running water than my high-speed internet.”

Jerusalim, who manages the CIBC Canadian Dividend Growth Fund, was speaking before Rogers Communications Inc.’s proposed deal to buy Shaw Communications Inc.

He pointed to Telus Communications Inc., a company whose capital intensity is declining after a fibre rollout. Even with upcoming spending on a 5G network, Telus will be “growing their free cash flow available to shareholders and have affirmed their 7% to 10% dividend growth targets for the next few years,” he said.

Finally, while the price of gold has dropped after peaking above US$2,000 in August, Jerusalim said gold companies will still be reliable dividend stocks. Senior producers such as Barrick Gold Corp., Newmont Corp. and Agnico Eagle Mines Ltd. “are generating very attractive cash flows and will continue to reward shareholders with dividend increases and special dividends,” he said.

Jerusalim also offered a “darkhorse” dividend sector: energy. As oil prices cratered last spring, energy companies were among the first to suspend dividends in response to the pandemic. But oil’s rebound has changed the outlook, with Canadian producers generating excess cash that could be paid out to shareholders, he said.

“Companies like Suncor [Energy] and [Canadian Natural Resources], the largest and most consistent energy producers in Canada, are the companies that are likely going to be the most consistent growers of those dividends over time, given their scale advantage and their long-life assets,” Jerusalim said.

This article is part of the AdvisorToGo program, powered by CIBC. It was written without input from the sponsor.

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Mark Burgess

Mark was the managing editor of from 2017 to 2024.