Is yield breaking out?

Canadian yield plays are trying to break out. While most of these sectors perform best over the summer according to the seasonals, the charts are telling us something different. In fact, many of the yield-orientated sectors and stocks such as utilities, REIT’s and high yield energy stocks underperformed this summer. Right now, their summer downtrends appear to be turning the page- although further evidence is needed to confirm this potential. Let’s take a look at a broad “dividend yield” ETF, run by BMO. The CDN Dividend ETF holds a variety of higher yielding CDN stocks including financials, energy, utilities, etc. You can see by the chart pattern that the spring/summer downtrend ended with a September breakout. Below, I’ll look at a few of the bigger sectors in Canada that tend to attract yield orientated investors. Click on the charts for greater detail.

zdv

Utilities

The BMO Canadian utilities ETF is attempting to break a significant resistance point at around $15.20. I’d like to see a break and at least 3 days follow-up before buying, but moneyflow (top, bottom panels) and comparative relative strength vs. the TSX (third pane from bottom) are improving.

zut short

REIT’s
REIT’s are not breaking out yet. Momentum looks encouraging, but moneyflow is pretty lame at this point—at least for the Canadian REIT ETF issued by iShares. I’d want to see the ETF break $15.50 before getting too excited.

XRE nearterm

Financials

I noted the breakout by the CDN banks here  Canadian insurance stocks, such as Manulife, are basing on growing moneyflow and momentum. It’s a positive development—look for a breakout before committing.

mfc

Energy

It’s a risky bet, but the market is moving into higher yielding energy stocks right now. Lower yielding stocks like Suncor in the sector are not the big movers. It’s the yield plays that are having all of the upside of late. Crescent Point Energy, probably one of the better known yield plays in that sector (despite the dividend cut a while ago) has recovered some of its losses after a devastating summer. The stock broke its short termed neckline at $17, and is finding resistance at the 2014 energy selloff lows. This is a risky bet – one that I won’t be playing.

cpg

Keith speaking at the MoneyShow Saturday October 31, 2015 at 3:30pm

Please come out and join me – I really enjoy meeting readers of this blog at my speaking engagements. Here is the link for the details.

8 Comments

  • Keith, I see no turnaround in preferreds (ie CPD). They’ve been hammered. What’s gone on and what’s in store?

    Reply
    • The problem with pref’s is that they are largely issued these days as fixed/reset vehicles–thus, they are resetting after five yrs. (typically that’s the reset period) at todays low rates. Many of them came due this year, and more are coming due in the next year or so. That’s bad news, given that there is no end in sight for low rates in Canada (and the USA).
      We sold almost all of our exposure to this area over the summer. Yes, it sucked taking the hit–but we used and are using the proceeds to buy yield stocks – aka this article.

      Reply
  • Keith, Telecom sector should be part of high yield sectors too. It looks very strong, and I am thinking of taking a position of BCE. See you at Money Show next Saturday.

    Reply
    • We bought BCE a week ago on the breakout. And yes, telecom looks great.

      Reply
  • Keith, what happened to TASR today??? Down more than 10% in a day, I did not see any news about them? Is it time to buy in now?

    Reply
    • No–as noted on my blog comment regarding TASR–the stock is only a safe buy if it breaks above $24. Right now, it is a risky trade

      Reply
  • You stated that Crescent Point Energy is a risky bet.
    I bought 600 shares at $27.50 in June.
    Should I hang on to it for a year or so?
    Should I sell it now and take a loss?

    Reply
    • Energy in general goes into a bit of a lull from October until February from a seasonal perspective. So I don’t expect much upside for at least the next few months in the sector. Thus, as a trader, you could sell and put your money into a sector that is looking more bullish —like telecom, technology, discretionary or likewise.
      However, if you are a long termed investor, you could sit on it, collect the dividend, and probably see your capital back in a few years –a trader will make more by rotating out now and owning better sectors in the meantime, then buying back when energy looks more attractive (watch for a base, breakout, and favorable seasonals –ideally combined)– but if you just want the dividend and don’t care about the noise, its my opinion that oil will rebound in a couple of years–it isn’t going to a be a fun ride for a while though.

      Reply

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