July 6, 2023

Thursday was a negative day for markets as the market (finally) starts to believe that at least one more (and quite likely two) interest rate hike will occur in the U.S. 

The S&P 500 was down 0.8% and Toronto was down 1.5%.

Most stocks wed down on the day. AutoCanada managed a 2.0% gain.

Costco reported same-store sales for June. I focus on the numbers adjusted for changes in gasoline prices. 

In the U.S. they were only up 2.0% which is low for Costco but not surprising after  all the huge gains since the time of the pandemic. Same -store sales growth in the U.S. has been quite weak for several months now. But the  market so far does not seem concerned and the stock barely budged in after-hours trading. If the weaker U.S. sales growth is due to volume being down it could be an indication of softer consumer spending. But it could also be due to lower inflation which would be good news for consumers. Costco does not break out its sales increases between volume and price changes.

In Canada, Costco’s same store sales growth in Canadian dollars was 6.5%. That could be both volume and inflation driven. And volume growth in Canada could be explained by the fact that the population here rose by over 1 million in the past year. I suspect that competition may be causing Costco in the U.S. to keep a lid on prices while in Canada competition is not as strong.

In my own investing I am interested in adding more in the area of preferred shares. 

For rate resets (see my recent preferred share article) I like EMA.PR.H. At $20.75 it yields 5.9%. But it is going to reset in mid August and if the 5 year Canada bond is at 3.75% (it’s currently 5.9% – correction 3.9% ) then the yield based on the new dividend would be 7.6%. With a reset date coming up in less than 6 weeks, there is not much risk that the 5 year Canada yield (which drives the reset level) will be much lower at that time.  And this one has a minimum dividend that would mean it won’t ever reset to a lower yield than the current 5.9% even if the 5 year Canada bond sinks very low once again in future.

Another possibility is to choose a perpetual. There I can get a yield of 6.5 to 6.7% which does not change with interest rates.

Another possibility is a floating rate perpetual. There is a rather complicated one BCE.PR.E that currently yields 9.6% at a price of $17.95. But this one floats monthly and so the dividend could definitely be noticeably lower over time. And oddly enough, its dividend will decrease if the price rises due to a complicated formula.


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