Posthaste: CIBC says the 'when' for Canadian dividend stocks is now

financialpost.com:

Change is in the air in Canada’s investment landscape, according to the Canadian Imperial Bank of Commerce.

The quick rise in interest rates over the past few years drove many investors into term deposits and other short-term fixed income products. CIBC estimates over $200 billion went to these products that normally might have bought high-yielding equities.

“With falling rates, it makes intuitive sense that some of this will reverse – but also reasonable to ask “when” will this occur?,” said CIBC analysts led by Ian de Verteuil in a research note.

To answer that question the CIBC team looked back at funds flow of Canadian bank term deposits over the past 35 years. There have been four periods of “meaningful” term-deposit outflows and on average they occurred 350-400 days after the peak in the 3-month bill and 2-year bond rates in Canada.

“Interestingly, these two rates actually peaked in October 2023 and have been falling since,” they said.

So where will the money go?

CIBC believes high-dividend-paying Canadian stocks are a “natural” home for these funds as they offer tax advantages over interest income and dividends can grow over time. The relative yield of these stocks compared with 2-year government rates is also becoming increasingly attractive, they said.

“Sectors such as REITs, Utilities, Telecoms and Financials have added appeal of better-than-average business and earnings stability,” said the analysts.

CIBC expects the Bank of Canada‘s overnight target rate to fall to 3.75 per cent by the end of this year and 2.5 per cent by the end of 2025.

If its forecast bears out, the decline in rates at this pace should drive investors back to Canadian dividend paying stocks, especially since many of these equities have