Market sectors with annual growth rates over the next decade near 20 per cent are rare but Citi analyst Pierre Lau believes solar power is one of them.
Mr. Lau believes that global solar power installations will increase by 22.2 per cent in 2022, thanks to a 40 per cent year over year surge in Chinese solar power construction.
In addition to China, Citi’s bullish outlook is based on renewable power projections for the U.S., European Union and India. Together, these countries account for 70 per cent of global solar power growth.
In the United States, the analyst estimates that solar power capacity will increase by approximately 19 per cent annually to 2026. In 2020, solar accounted for 4.7 per cent of U.S. electricity but Citi believes that solar will be the fastest-growing power source over the next three decades. The Energy Information Administration projects that solar power will account for 21 per cent of U.S. electricity production by 2030, replacing much of current coal-related power.
Citi recommends Illinois-based SolarEdge Technologies Inc. (SEDG-N) and energy storage specialist Fluence Energy Inc. (FLNC-Q) as the companies best positioned to benefit from the trend.
In Europe, regional officials have committed to a more-than doubling of solar power from the current 152 gigawatts to 310 gigawatts by 2030. Growth is expected to be particularly strong in Spain, and Mr. Lau recommends independent solar power producer Solaria Energia y Medio Ambiente SA (SEYMF-OTC) as a top investment pick.
India is rapidly becoming a solar power leader. Government initiatives have motivated a jump in solar power production from 10 per cent of the total in 2010 to 26 per cent now. This represents a remarkable move from 1.2 gigawatts in 2012 to the current 48 gigawatts. Mr. Lau mentions Tata Power Co. and JSW Energy Ltd. as companies at the center of the transition.
-- Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
Boyd Group Services Inc. (BYD-T) The Winnipeg-based collision repair chain has seen its share price increase in each of the past 14 calendar years. Over that time, the stock has generated an average annual total return of 45 per cent – making it the top performer in the S&P/TSX Composite Index by a wide margin. But that winning streak is in danger of ending this year. As Tim Shufelt reports, Boyd’s profit margins took an alarming hit in the company’s latest quarter.
Savaria Corp. (PSK-T) This is a well-run company. But for now, our equities analyst Jennifer Dowty believes the stock may be one to watch, as a more attractive entry point may present itself. The stock is now trading at a valuation that is in-line with its historical average. And the Street is forecasting the share price will rebound over the next year with a 32 per cent gain anticipated. Yet, 2022 earnings estimates may be too high as supply chain challenges and rising input costs may persist into 2022.
The Rundown
What the markets are telling us about Omicron fears
Mr. Market isn’t sure what to think. On Friday, he was petrified of the Omicron variant, on Monday, blasé, on Tuesday back to terrified. On Wednesday, his mood changed yet again. As Ian McGugan tells us, investors may want to take a deep breath. Yes, what we don’t know yet about the new COVID-19 variant is disturbing. But in the absence of hard facts, rushing to conclusions can be dangerous.
As REITs continue their robust rebound, here are three ETFs to consider
The onset of the pandemic early in 2020 panicked investors in real estate investment trusts. Worries that renters wouldn’t be able to pay their bills prompted a massive selloff in real estate investment trusts, not just in Canada but around the world. Between Feb. 21 and March 20, 2020, the S&P/TSX Capped REIT Index fell 38 per cent in the space of four weeks. The index bumped along that bottom until October 2020, when it began the rally that continues to this day. But despite the robust recovery, it has still not quite regained its pre-pandemic high. If you’re thinking of buying an ETF that tracks REITs, Gordon Pape has three suggestions.
History says expect strong December for U.S. stocks, despite Omicron and Fed worries
A pileup of risks into year-end has some investors gauging whether December will continue its historical trend of a strong stock performance, even as markets face of worries over the Omicron coronavirus variant and a more hawkish Federal Reserve. While those risks are unlikely to dissipate anytime soon, stocks may still finish the year on a strong note, if historical performance is any guide. Lewis Krauskopf of Reuters reports.
Also see:
Poll: TSX to extend record-setting rally; pace of gains to slow
Wall Street strategists see more gains in 2022
Others (for subscribers)
Wednesday’s analyst upgrades and downgrades
Tuesday’s analyst upgrades and downgrades
Tuesday’s Insider Report: CEOs are selling these stocks as they climb to record levels
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Ask Globe Investor
Question: Is Labrador Iron Ore Royalty Corp.’s (LIF-T) 17-per-cent dividend yield sustainable?
Answer: If you think you can earn 17 per cent without any risk, I have some oceanfront property in Saskatchewan to sell you.
The first thing you need to know is that Labrador Iron Ore Royalty’s quarterly dividend has been exceptionally volatile over the years. It has been as low as 25 cents in some quarters and as high as $2.10, which was the value of the most recent dividend paid on Oct. 26.
There’s a good reason for this variation: The company’s cash flow and dividends are closely tied to iron ore prices through its 15.1-per-cent equity interest in Iron Ore Company of Canada, from which Labrador Iron Ore Royalty also earns a royalty and commissions on iron ore sales.
Commodity prices are notoriously unpredictable, and iron ore is no exception.
Last spring, the price of iron ore – which is used primarily in steelmaking – hit record highs, and Labrador Iron Ore Royalty subsequently announced some big dividend increases. Since then, however, the price of iron ore has plunged amid slowing demand in China – the world’s biggest iron ore consumer – which suggests the royalty company’s cash flow and dividends will also fall.
Another indication came this week when Iron Ore Company of Canada, the operating company, declared its own dividend, which is payable on Dec. 23. Labrador Iron Ore Royalty’s share of that dividend is about $47.9-million, down from about $85.7-million in the previous quarter.
Labrador Iron Ore Royalty’s stock price is also down sharply from its highs, which has pushed the yield well into the double digits.
Yield can be measured in different ways. The 17-per-cent figure you quoted is a “trailing yield,” calculated by adding up the four quarterly dividends paid over the previous 12 months and then dividing by the current share price. (As of Friday afternoon, the trailing yield had risen to about 17.8 per cent.)
The “indicated yield” is calculated by multiplying the latest quarterly dividend by four to determine a projected annual dividend, then dividing this number by the share price. Iron Ore Royalty’s indicated yield is currently about 22 per cent.
Such projections are fine for stable dividend payers, such as utilities and banks, but not for companies whose fortunes are tied to volatile commodity prices. I’m not saying the stock is necessarily a bad investment at current levels, just that you shouldn’t count on such a rich dividend continuing. The market is skeptical, too, which is why the yield is so high.
For my model Yield Hog Dividend Growth Portfolio (tgam.ca/dividendportfolio), I generally avoid commodity stocks because their dividends are so variable. However, I recommend that dividend investors supplement their holdings with broad index exchange-traded funds that provide exposure to commodity producers, technology stocks and other sectors that don’t typically pay large or stable dividends, but can nonetheless enhance portfolio diversification and returns.
--John Heinzl
What’s up in the days ahead
Is the U.S. dollar really a safe haven when markets get antsy? David Berman will report on some surprising research.
Click here to see the Globe Investor earnings and economic news calendar.
Editor’s note: Monday’s newsletter incorrectly stated BofA U.S. quantitative strategist Savita Subramanian believes the S&P 500 will post a 6.5 per cent return in 2022. Ms. Subramanian expects earnings per share growth of 6.5 per cent next year, but has a year-end 2022 target of 4600 for the S&P 500, which would represent little change from current levels.
Compiled by Globe Investor Staff