” Is the glass half empty or half full or half empty”
In our reflection section we looked at two events that could be interpreted as either good or bad. The major US indexes have gone an extended period without a daily decline of more than 2%. From one perspective it is great that the markets have been rising without a significant daily decline. Low volatility is good for investor sentiment, The other side of the coin is the market is getting more expensive? The real question is not is it more expensive but is the market TOO expensive. If you get to an extreme you will definitely experience a decline. The second event was the Bank of Canada’s decision to lower rates. The lower rates are positive for borrowers such as homeowners with large mortgages, The potential negative is why did the bank lower rates? If employment were full and getting tighter the bank would not be able to lower rates. The bad, or negative, is that the economy has enough slack to allow the Bank to lower rates. You can view the glass as half empty or half full,
We have not changed our approach, we continue to like earning income from dividend paying stocks, especially from companies with a history of paying dividends. I remember back in 2009, in the midst of the US banking crisis when you could buy a Canadian bank with a 10% yield. The Bank of Montreal traded close to $33 per share. Today the bank is trading around $115 per share during the intervening years the stock has had dramatic fluctuations but the dividend has never been cut and in fact it has increased most years. This strategy works over longer periods. The Bank of Montreal has traded as high as $144 per share in the past year. If you look at your statement you might question the decline from $144 to $115. We like the 5% dividend yield you collect no matter what the stock price. We believe you are getting paid to wait for the recovery. I use the Bank of Montreal as an example as the other Canadian banks have had similar movements. We are disappointed the price has declined but as long as the long-term fundamentals have not changed, we view the banks as attractive.
