Watching two US income darlings, AT&T (T-US) and Verizon (VZ-US), get clobbered this week got me to thinking about dividend yield. Verizon yields 7.72% and is down 15.2% this year. AT&T yields 7.57% and is off 20.3%. Dividend-paying stocks, a staple in many investors’ portfolios, have been pummeled this year. Last year, investors piled into dividend stocks for their defensive qualities and income. This year, it’s a different story: Dividend payers congregate in value sectors such as financials, energy, and utilities that have lagged behind growth sectors such as tech. Investors have also had plenty of choices for finding yield without taking on risk, including GICs. This makes the environment for dividend paying stocks complicated. That has led some investors to take a pass on dividend stocks. The hugely popular Vanguard High Dividend Yield Index ETF (VYM-US) is up 0.8% this year while the massive SPDR S&P Dividend ETF (SDY-US) has gained a mere 0.7%. In Canada, the Invesco Canadian Dividend Index ETF (PDC-T) is only up 2.29% this year. But it yields 4.49% and likely has ample upside ahead as reversion to the mean will inevitably occur. This is an exceptionally good time to be taking advantage of the recent underperformance and to be buying dividend stocks. A market rally driven by just a handful of stocks is often thought to last for only so long. There will likely be a significant market rotation toward many areas that have lagged behind in the first part of the year. This should include dividend aristocrats in financial, healthcare, industrials, and utilities.

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Portfolio Notes

(+) indicates a positive development, (-) indicates negative, and (~) indicates neutral

(+) Boardwalk REIT (BEI.UN-T) climbed to new highs this week. Boardwalk is in the right segment, in the right place at the right time. In terms of segment, Boardwalk is a multi-family REIT, a group which is being helped by strong immigration into Canada. According to Boardwalk, over the past four quarters, Canada has received more than 1.1 million immigrants. That is obviously a tailwind for housing demand. Meanwhile, in terms of location, as of the end of Q1, Alberta accounted for 20,697 of the REIT's 33,069 suites. The province received 10.6% (123,935) of those immigrants. In addition, according to Boardwalk, Alberta has also benefited from net provincial migration, gaining 56,462 people over the past four quarters. Alberta landlords also benefit from being able to raise rents annually by as much as they want. In terms of timing, Alberta is enjoying relatively strong economic growth as the oil patch rebounds. That is helping drive what Boardwalk describes as strong rental housing fundamentals, which it believes can help drive organic growth in the quarters ahead despite the headwinds of elevated interest rates and inflation. Investors appear to be in agreement, bidding up Boardwalk REIT units 32.6% year-to-date. Owned in Cash Flow Portfolio.

(-) Crown Castle(CCI-US) reported a good quarter with in-line revenues and AFFO/share, but trimmed 2023 guidance which sent shares lower. Total revenues grew 7.7% Y/Y with strong organic contribution to site rental billings. Tower leasing revenues were flat Y/Y while small cell/fibre leasing revenues grew 33%. 2023 guidance was lowered reflecting modest expectations for tower activity as well as higher costs. We continue to like CCI given its leadership in the oligopolistic towers market in the U.S., leverage to secular growth trends such as 5G, overall revenue and cash flow visibility of the towers segment, steady dividend growth and attractive yield. Recent share price weakness has been driven by concerns around the telecom operators' use of lead cables, which could hamper capex investment. We await further clarity on the extent of the potential liabilities, and changes in the capex programs of their customers. Owned in US Portfolio.

(+) Choice Properties REIT (CHP.UN-T) produced a decent quarter with FFO coming in-line with RBC and street expectations. Underlying property fundamentals remains solid on the back of healthy rent growth, NOI growth, and strong occupancy. The company also renewed the majority of its Loblaw leases which were set to expire in 2024. Overall, units are trading at an approximate 7% discount to NAV, a premium to the sector but we continue to see value in the units. CHP.UN comes with an attractive yield of 5.5% and units provide a degree of ballast to portfolios given that Loblaw is the anchor tenant. Owned in Cash Flow Portfolio.

(+) Johnson & Johnson (JNJ-US) reported a beat on revenues and adj. EPS. Revenues grew 6% Y/Y, primarily driven by strong growth in the MedTech segment as surgeries recovered. This sets a positive tone for the rest of the year. The Kenvue IPO proceeded in the quarter as planned and JNJ will split off its shares through an exchange offer as its next step in the separation. JNJ is down -10% YTD vs the S&P500 +19%. It trades at 15x forward P/E, a discount to its 16x average. We continue to like the stock as it can focus on growing the MedTech and Pharma businesses post the sale of its Consumer business. Management has a focused strategy to grow various products in the pipeline. For total-return and dividend-growth oriented investors, we would continue to own the stock and be buyers at these levels. Owned in US Portfolio.

(+) Eli Lilly (LLY-US) shares climbed after CEO David Ricks provided an update on the company’s positive results from its latest Alzheimer’s study. Data from the late-stage trial showed Alzheimer’s drug donanamab significantly slowed cognitive decline. We remain bullish on the pharmaceuticals giant for a strong pipeline that includes Mounjaro, a diabetes medication awaiting approval in the U.S. to treat obesity. Owned in US Portfolio.

(-) Prologis Inc. (PLD-US) beat on FFO but missed on rental revenues. Operating performance remained strong with occupancy at 97.5%, retention of 70.5%, and 43M s.f. of leases commenced. We continue to like the long term story driven by continued growth in e-commerce and supply chain modernization. Management has a track record of creating shareholder value from development. We continue to own the name and would be buyers at these levels. Owned in US Portfolio.

(+) Sunrun (RUN-US) stock climbed as Morgan Stanley picked the company in its solar energy choices ahead of the second quarter results season. The Morgan Stanley analyst said he expects the company will achieve the middle of its 270-290 MW installations target in Q2 and model $12,921 NSV vs. the company's guidance for sequential growth off of $12K in Q1, and a "fairly constructive" update of the demand outlook on its Sunrun Shift product, supporting near-term market share gains in California, which could drive a positive full-year guidance revision. The analyst said he continues to expect the large installers, particularly Sunrun (RUN), Sunnova (NOVA) and SunPower (SPWR), will gain share in this environment as they have established a cost of capital, balance sheet and supply chain advantage over the smaller players. Owned in ESG+ Portfolio.

(-) Taiwan Semiconductor (TSM-US) Shares of the company slumped after the world's largest contract chipmaker flagged a 10% drop in 2023 sales and said production due to start next year at its first plant in Arizona would be delayed. On Thursday, TSMC reported a 23.3% fall in second-quarter net profit - its first on-year drop in quarterly profit since the second quarter of 2019 - as global economic woes take a toll on demand for chips used in everything from cars to cellphones. I do not believe this is a reflection on Nvidia even as everyone thinks so. The weakness at TSMC is because of lower-end Chinese CPUs, not the high-end GPUs that Nvidia is known for. Owned in Opportunity Portfolio.

Weekend Reading

RBC MacroMemo - July 18 -31, 2023 Economic weakness continues in China / Port strike in British Columbia disrupts trade / Economic data weakens slightly / Consumer tidbits show mixed spending trends / Recession musings lead to shift in our forecast / Inflation cooperates in June / Central banks continue raising rates / Society in decline? Part II RBC

Work from home, and golf Quite the study from Stanford University. SAHIL BLOOM

What is a board of directors? McKinsey looks at who serves on a board of directors. And outlines four essentials to building a strong board of directors. MCKINSEY

Ken Griffin sat down with Goldman’s Raj Mahajan to discuss lifelong learning, democratization in finance, and the evolution of Citadel’s business. YOUTUBE

Cosmic Paradigm Shift: New Research Doubles Universe’s Age to 26.7 Billion Years A new study suggests the universe might be 26.7 billion years old, almost double the widely accepted age of 13.7 billion years. SCI TECH DAILY

The Vibecession: The Self-Fulfilling Prophecy Are we manifesting a recession? A massive advance in consumer sentiment seems to have ended a phenomenon in which investors constantly worried that a recession was on the horizon. KYLA SCANLON

Multiple expansion Are markets up because of earnings growth or multiple expansion? AXIOS

Beware the Boredom of Bull Market Even if you are a long-term investor, what do you do but feel bored when you don’t find anything worth buying because everything seems to be so inflated? SAFAL NIVESHAK