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10 Top Canadian Dividend Stocks to Buy in October 2021

One of the best ways to increase the value of a stock portfolio while protecting it from adverse market movements is to add Canadian dividend stocks. Particularly Canadian Dividend Aristocrats, that will provide income in any market environment. Many…

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One of the best ways to increase the value of a stock portfolio while protecting it from adverse market movements is to add Canadian dividend stocks. Particularly Canadian Dividend Aristocrats, that will provide income in any market environment.

Many investors first learning how to buy stocks in Canada want to know what the best options are today. Due to this we decided to create this piece that includes ten of the best income stocks in the country today.

Before we start... lets look at what we take into consideration on this list.

This list of Canada's top dividend stocks takes 3 things into consideration

The growth, safety, and current yield of the dividend.

A high yielding income stock may be placed lower on this list due to safety, and a low yielding stock could be placed higher on this list due to the company's dividend growth.

Just because a stock is listed high on this list, or one of your dividend stocks didn't make the list, doesn't necessarily mean it is a poor income stock. Remember, there are over 3000 stocks trading on the TSX and the TSX Venture. This is only 10 of them.

This list also doesn't contain any stocks we have highlighted over at Stocktrades Premium. If you want the true best of the best, click here to get started for free

We've more than doubled the overall markets with our individual stock picks, and we have a game changing dividend safety screener that can help you make better decisions.

With that being said, lets get started.

Our top 10 Canadian dividend stocks to be looking at right now

10. Bank of Nova Scotia (TSX:BNS)

In reality, we could litter our top 10 list with Canada’s Big Five banks. They are among the most reliable income stocks in the world.

Lets start with a Canadian dividend stock that focuses on yield.

As of writing, the Bank of Nova Scotia’s (TSX:BNS) 4.7% yield is the highest of the Big 5 banks.

The Bank of Nova Scotia has grown its dividend every year since 2010, during which time it averaged approximately 6% annual dividend growth. The bank first paid a dividend in 1833 and has never missed a dividend payment since.

It has also raised dividends in 43 of the past 45 years. The 2008 Financial Crisis halted all the dividend growth streaks of Canada’s Big Banks. However, not one cut the dividend. This is in stark contrast to what happened worldwide.

A similar phenomenon is happening today. European Banks have been forced to cut the dividend, and some US banks such as Wells Fargo have also cut in 2020. In Canada, it is steady as it goes.

However, there is one key difference. The Feds have asked Canada’s banks not to raise the dividend during the pandemic. There is no current risk of a dividend cut at the Bank of Nova Scotia, however the company will not maintain its current 10 year dividend growth streak because of the restrictions.

Banks like Royal Bank, Bank of Montreal, and Toronto Dominion Bank raised just prior to the pandemic, so their streaks will stay in tact. CIBC and Scotiabank were not as lucky.

But, don't let this discourage you. The Bank of Nova Scotia is still an excellent option for high yield seekers.

Buying the Big 5 bank that has the highest yield has proven to be a good idea historically, and locking in a yield over 4.7% at a time when the Canadian 10 year bond yield is extremely low is an opportunity too good to pass up.

Scotiabank has been mired in inconsistencies in the past and has struggled to keep up with the other major banks, but there are signs the company is quickly turning the corner, and has been one of the best in terms of performance over the last year, gaining just over 60%.

10 year dividend-adjusted return of BNS vs the TSX

TSE:BNS 10 Year Performance Vs TSX

9. Alimentation Couche-Tard (TSE:ATD.B)

Couche Tard stock

Alimentation Couche-Tard (TSE:ATD.B) is one of the best Canadian dividend stocks to buy today, yet it doesn't get much attention in the dividend world.

Why is that? Well, we'll get to that in a bit.

Couche-Tard is the largest convenience store operator in the world, and has over 15,000 stores globally.

If you're from Eastern Canada, "Couche-Tard" will be a common name. If you're from the west however, you've likely seen the company run under the name "Macs".

Fewer and fewer of these stores are emerging as of late and the company tends to run under arguably its most popular brand, Circle K. Circle K is truly a global brand, selling gasoline, beverages, food, car wash services, tobacco, and so much more to countries like China, Egypt, Malasia, the United States, Canada, and most of Europe.

Now that we know what the company does, lets move on to the dividend. Couche-Tard has been growing its dividend at an exceptional rate. In fact, the main reason Couche-Tard is on this list is because of its growth.

With an 11 year dividend growth streak, a 5 year dividend growth rate of 23.95%, and a payout ratio of 8.95%, this is a company that is in one of the best positions in the country to fuel dividend growth for investors.

With a yield of 0.86%, it's often overlooked by investors. However, we do have to take into consideration overall returns here. And if we do that, Couche-Tard is simply a no brainer.

With this type of dividend growth, its yield can only remain low if one thing is occurring, rapid share appreciation. And, this is 100% the case. In fact, a $10,000 investment in Couche-Tard just a decade ago is now worth $105,000.

At that point, I don't care about the yield. I'll sell some shares and create my own dividend!

If there's one stock on this list that should make investors reconsider how important yield is to them, it's definitely Couche-Tard. The company is a more established blue-chip play now, so growth won't be as extensive, but it's still got a ton of room.

As a bonus, it's also one of our Foundational Stocks over at Stocktrades Premium. We give 3 of our 10 Foundational Stocks to members who sign up for free today. So, click here to get started!

10 year dividend-adjusted return of ATD.B vs the TSX:

TSE:ATD.B 10 Year Returns vs TSX

8. Metro (TSE:MRU)

metro dividend

Metro (TSE:MRU) is one of the largest grocers in the country, and is also one of the most reliable Canadian dividend stocks to own today.

Consumer staple stocks like grocery stores tend to be viewed as "boring" options. In the midst of the COVID-19 pandemic, as growth stocks were out of control, defensive options like Metro were cast aside.

But, as we shift toward reopening and life gets back to normal, it's starting to get more attention, justifiably so.

In terms of dividend, Metro is tied for the 8th longest streak in the country with Imperial Oil and fellow retailer Empire Company. However, one of the clear differentiators between Empire and Metro is Metro's dividend growth.

With a 26 year dividend growth streak, the company also sports double digit 5 and 1 year growth rates at 14.22% and 12.18% respectively. From a company operating in a mature sector like Metro, this is outstanding dividend growth.

With payout ratios in terms of earnings and free cash flows in the mid 20% range as well, this signals that the company shouldn't be slowing this dividend growth pace anytime soon.

The company is not a pure-play grocer either. It entered the pharmacy scene with a major acquisition of Jean Coutu in 2018, and overall it has one of the most dominant presences in Quebec out of all major grocery stores. The province currently holds over 70% of its owned and franchised food and drug stores.

You're not going to knock it out of the park with a company like Metro in terms of capital appreciation. But, you're going to get a reasonable 1.7%~ dividend yield and likely mid to high single digit growth.

Not every stock inside of your portfolio needs to be flashy. And, if we ever hit a market crash like we did in 2020, you'll be thankful you own Metro, as its share price was largely unaffected.

10 year dividend-adjusted return of MRU vs the TSX:

TSE:MRU Vs TSX Index

7. Canadian Apartments REIT (TSE:CAR.UN)

canadian apartment properties reit

Canadian Apartments REIT (TSE:CAR.UN) is one of the largest residential real estate trusts in the country.

The trust has a dominant presence in the sector and is one of the most popular REITs in Canada.

You might be saying right now "well I'm not looking for the top REITs, I'm looking for the top stocks!"

But the reality is, if you're looking to build a strong dividend portfolio, there is a good chance it's going to contain a portion of REITs for a few reasons.

For one, a real estate investment trust is forced to pay back a particular percentage (90%+) of its earnings to unitholders. Being a common shareholder of a stock, the dividend does not necessarily need to be placed highest on the totem pole.

And secondly, due to the fallout of the pandemic in 2020 and 2021, inflation is going to be a long standing fear and overall concern when it comes to the deterioration of investors capital.

So, what performs exceptionally well in times of high/rapid inflation? Real estate. Which is one of the reasons why CAPREIT makes this list.

The company primarily engages in the acquisition and leasing of residential properties here in Canada. The company's portfolio contains both mid-tier and luxury properties, and generates the majority of its revenue from the Toronto and Greater Montreal regions.

CAPREIT is in one of the best financial positions out of all Canadian REITS, with a debt to gross book value under 40%, and its dividend accounts for less than 75% of funds from operations.

In 2020, the company was added to the the TSX 60 Index, which represents 60 of the biggest companies on the Toronto Stock Exchange.

The REIT doesn't have the flashy yield that many others do (2.53%), particularly in the commercial sector. However, it's important to understand that while payout ratios were high and dividends were getting cut in the sector during the pandemic, CAPREIT was at no risk of cutting the distribution.

The reliability of a dividend is much more important than the overall yield.

10 year dividend-adjusted return of CAR.UN vs the TSX

TSE:CAR.UN 10 Year Vs TSX Index

6. Allied Properties REIT (TSX:AP.UN)

Allied Properties REIT

Office REITs have been among the hardest hit industries in this pandemic. The shift to work at home has many questioning whether or not there will be a need for office space on the other side.

So, Allied Properties REIT (TSX:AP.UN) will seem like somewhat of a contrarian play, but, hear us out.

Although there are certainly trends worth monitoring, the need for office space will remain, and it may just look slightly different.

Given this, we believe that Allied Properties REIT offers investors an attractive risk to reward opportunity, and it is among the best office REITs in the country.

First, the company’s distribution which currently yield’s 3.99% is well covered. It accounts for only 73.3% of adjusted funds from operations (AFFO), one of the best coverage ratios in the industry. Keep in mind, this ratio is also down over 11% since we last updated this post, highlighting a further recovery to normal for Allied.

It is also the only Office REIT that is a Canadian Dividend Aristocrat. The company owns a nine-year dividend growth streak in which it has averaged ~2.5% annual dividend growth. In December of 2020 Allied announced it was raising its dividend for 2021 by 3%.

Allied Properties is also in one of the best financial positions of its peers. It has an industry leading debt-to-gross book value of only 31.3% and its 3.3x interest coverage ratio is second best among REITs (after Granite REIT).

To top things off, analysts are expecting the company to grow revenue at an average of 26% over the next few years.

Once again, this is tops in the industry and is one of the main reasons why we believe Allied has an attractive risk-to-reward profile.

Overall, don't paint all office REITs with the same brush. As life starts to get back to normal, this is a REIT you need to add to your watchlist today.

5 year dividend-adjusted return of AP.UN vs the TSX

TSE:AP Vs TSX Returns 10 year

5. Magna International (TSE:MG)

Magna

A new addition to our dividend list, Magna (TSX:MG) is establishing itself as a strong dividend stock worthy of investors' consideration. It is one of the largest auto parts manufacturers in the world.

Magna supplies car companies with a wide range of parts, including many parts required for the production of electric vehicles and self driving cars. 

This exposure to EV vehicles is what many have overlooked in the past, thinking of Magna only as an archaic automobile parts manufacturer. This couldn't be farther from the truth. 

However, auto parts are a cyclical business. To succeed in both navigating the cycles and maintaining a reliable dividend, you need strong management, ones that can build a balance sheet to withstand all economic conditions.

Magna has just that. The company has $1.633 billion of cash and its debt is just 1.26x its EBITDA from the last twelve months.

Not only that, but Magna has proven in 2020 that it has an extremely resilient business.

While Magna suffered a loss in what was a quarter in which peak lockdowns were having significant impact on all companies, it quickly rebounded in the third and fourth quarters of 2020 to post positive net income, and has continued to do so in early 2021.

With Magna’s exposure to the fast growing electric vehicle industry, the company is well positioned to overcome any market cycles and keep growing its dividend.

Analysts are estimating Magna will earn $9.16 in 2021. If it can hit this mark, the company’s current 1.76% dividend yield ($2.08 annually) has a payout ratio of just 22.7%.

Given this, Magna can be counted on to keep its dividend growth streak going. The company has a 11-year dividend growth streak and the dividend has grown by 16.85% on an annual basis over the last 5 years.

Magna is also trading at attractive valuations. Despite its recent run up in price, it's still trading at only 10 times forward earnings. Which, despite being above historical averages, is a solid price to pay for the company considering its potential growth in the EV market.

10 year dividend-adjusted return of MG vs the TSX

TSE:MG 10 Year Returns vs TSX Index

4. TC Energy (TSX:TRP)

TC Energy Logo

We can’t talk about the top dividend stocks in Canada without mentioning one of Canada’s pipelines. Although the oil & gas industry has been under pressure recently, pipelines are not as sensitive to the price of commodities.

TC Energy (TSX:TRP) is the second-largest midstream company in the country and it owns a 20-year dividend growth streak. This is tied for the 13th longest dividend growth streak in the country.

Over the course of its streak, it has averaged 7% dividend growth.

Despite facing considerable industry headwinds, TC Energy continues to generate a ton of cash. The company’s 33.2% payout ratio is among the best in the industry and the dividend accounts for only 43% of cash flow.

The company has guided that it intends to grow the dividend 7% in 2021, and 5-7% in the years after that.

Despite the price of oil crashing, the company has re-iterated dividend growth guidance several times. Now that were are seeing the price of oil recover and the economy reopen, it's likely TC Energy, despite not being impacted as much by the price of oil as a producer, will still get some of the growing oil price tailwinds.

The company has a low-risk business model in which 95% of EBITDA is generated from regulated or long-term contracted assets. This is exactly why in the midst of the pandemic it stated that operations were relatively unaffected.

Many pipelines have take-or-pay contracts with producers. Which means regardless of product shipped, the pipeline gets paid. This creates extremely reliable cash flows and is why companies like TC Energy and Enbridge have some of the safest, most reliable dividends in the country.

Now yielding 5.3%, trading at 13.94 times forward earnings and at a 12% discount to analysts one-year target prices, TC Energy is looking quite attractive for those looking to lock in high income at attractive valuations.

5 year dividend-adjusted return of TRP vs the TSX

TSE:TRP 10 Year Performance Vs TSX

3. BCE (TSX:BCE)

BCE dividend

When it comes to moat and reach, BCE (TSX:BCE) ranks up there with the best. Is it the best telecom to own for overall growth? No. But, is it a dividend beast? Absolutely.

In fact, if you invested $10,000 into the company in the mid 1990's, it's looking like $377,700 today if you had reinvested the dividends.

It is the largest telecommunications firm in the country and provides services to over 9.6 million customers across Canada. 

It is the only one of Canada’s Big Three telecoms to have a strong presence from coast-to-coast.

BCE currently yields an attractive 6.02%, which is above its historical averages.

The company has a 12-year dividend growth streak over which time it has averaged approximately 5% annual dividend growth.

At first glance, the 11-year dividend growth streak might not seem that impressive considering the company’s long and storied history. However, the streak is a little misleading.

The company froze the dividend in 2008 when it was being taken private by a group led by the Ontario’s Teachers Plan.

However, the deal ultimately fell through and the company resumed growing the dividend. Since it went public in 1983, BCE has never missed a dividend payment, nor has it cut the dividend.

One of the biggest drawbacks with the company is the high payout ratios. Currently, the dividend accounts for 121% of adjusted earnings.

Although this is concerning, the rate as a percentage of cash flows drops considerably. Currently, the dividend accounts for only 80% of free cash flow. This is still high, but when we factor in the company's long standing history, I think they can make the ratios work.

The company is currently trading at a slight premium to its historical averages, but it's minimal.

BCE is neither cheap, nor expensive when compared historically or to its peers. Not surprising as BCE is one of the most consistent and reliable stocks in the country.

Don't expect earth shattering returns from the company's share price. But, own this one for a decade and reinvest the dividends, and you'll likely be happy.

10 year dividend-adjusted return of BCE vs the TSX

TSE:BCE 10 Year Returns Vs TSX

2. Royal Bank of Canada (TSX:RY)

Royal Bank dividend

The Royal Bank of Canada (TSX:RY) is the largest bank in Canada and is among the largest companies in the country. It has been named Canada’s most valuable brand for six years running and is consistently among the best performing Big Five banks.

It has been the top performing Big Five bank over the past 3, 5, and 10-year periods.

Given the strong results posted by Canada’s banks during this pandemic, we believe that it is only a matter of time before Canada’s Big Banks receive the green light to once again raise dividends. 

Today, the best positioned to do so is Royal Bank.

At 54%, it has the lowest payout ratio among its peers. It is also important to note, that the respectable payout ratio is on a trailing twelve-month basis, which means that it still includes some peak pandemic related quarters. 

So, you can expect this payout ratio to continue heading lower.

The company is the Canadian bank with the most geographical exposure, to over 37 countries in fact. This allowed the bank to perform exceptionally well during the pandemic as it was exposed to a variety of countries that were at different stages of recovery/lockdown.

There are rumors that interest rates are going to be on the rise sooner rather than later, as the Bank of Canada may have over estimated the impacts of the pandemic on the economy. In order to "cool" it off, they'll have to raise rates and slow borrowing. 

Financial companies perform best in rising rate environments, so there might be more room to run for Royal Bank, and other Canadian financial companies.

Royal Bank owns a 10-year dividend growth streak over which time it has grown the dividend by an average of 6.85% annually. Now yielding 3.68%, the Royal Bank is deserving of its place among Canada’s top dividend stocks.

10 year dividend-adjusted return of RY vs the TSX

TSE:RY 10 Year Returns vs TSX

1. Fortis (TSX:FTS)

Fortis dividend

Fortis (TSX:FTS) has been a mainstay on our list of top dividend stock for years. As the largest utility in the country, Fortis is arguably one of the most defensive stocks to own.

Fortis owns the second-longest dividend growth streak in Canada. At 47-years long, the company will be among the first Canadian stocks to reach Dividend King status – a prestigious status reserved for those who have raised the dividend for at least 50 consecutive years.

Given our current environment of uncertainty, dividend safety and reliability is the main reason why Fortis is our top dividend stock in Canada.

Throughout the past three, five, and ten-year time frames, Fortis has consistently raised the dividend by approximately 6%.

Further demonstrating its reliability, Fortis is one of the few companies which provides multi-year dividend growth targets.

Through 2024, Fortis expects to raise the dividend by 6% annually – inline with historical averages.

In August of 2020, the company re-iterated that its capital program and dividend growth guidance remains intact despite the current pandemic.

Unlike Royal Bank which would have benefitted from rising interest rates, a company like Fortis would be negatively impacted by interest rates. This is because utilities are a capital intensive industry, one that requires a lot of capital investments and debt to build infrastructure.

However, Fortis's movement in price has been relatively unimpacted by rising rates, and likely won't be moving forward. That is a strong sign of confidence in the company.

$10,000 in Fortis in the mid 1990's is now a quarter million dollars today if you reinvested your dividends. The company has simply been an exceptional performer.

And, with a beta of 0.05, indicating this stock is 1/20th as volatile as the overall market, it seems to operate almost more like a bond.

Combine strong dividend growth with an attractive yield (3.68%) and you are looking at the top income stock to own in Canada today.

Fortis is currently trading at 18.46 times forward earnings and 1.36 times book value. Both of which are right inline with historical averages.

Not only can investors lock in a safe and attractive dividend, they can do so at respectable valuations.

10 year dividend-adjusted return of FTS vs the TSX

TSE:FTS 10 Year Return Vs TSX

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Huge Dock Worker Protests In Italy, Fears Of Disruption, As Covid ‘Green Pass’ Takes Effect

Huge Dock Worker Protests In Italy, Fears Of Disruption, As Covid ‘Green Pass’ Takes Effect

Following Israel across the Mediterranean being the first country in the world to implement an internal Covid passport allowing only vaccinated citize

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Huge Dock Worker Protests In Italy, Fears Of Disruption, As Covid 'Green Pass' Takes Effect

Following Israel across the Mediterranean being the first country in the world to implement an internal Covid passport allowing only vaccinated citizens to engage in all public activity, Italy on Friday implemented its own 'Green Pass' in the strictest and first such move for Europe

The fully mandatory for every Italian citizen health pass "allows" entry into work spaces or activities like going to restaurants and bars, based on one of the following three conditions that must be met: 

  • proof of at least one dose of Covid-19 vaccine

  • or proof of recent recovery from an infection

  • or a negative test within the past 48 hours

Via AFP

It's already being recognized in multiple media reports as among "the world's strictest anti-COVID measures" for workers. First approved by Italian Prime Minister Mario Draghi's cabinet a month ago, it has now become mandatory on Oct.15.

Protests have been quick to pop up across various parts of the country, particularly as workers who don't comply can be fined 1,500 euros ($1,760); and alternately workers can be forced to take unpaid leave for refusing the jab. CNN notes that it triggered "protests at key ports and fears of disruption" on Friday, detailing further:

The largest demonstrations were at the major northeastern port of Trieste, where labor groups had threatened to block operations and around 6,000 protesters, some chanting and carrying flares, gathered outside the gates.

    Around 40% of Trieste's port workers are not vaccinated, said Stefano Puzzer, a local trade union official, a far higher proportion than in the general Italian population.

    Workers at the large port of Trieste have effectively blocked access to the key transport hub...

    As The Hill notes, anyone wishing to travel to Italy anytime soon will have to obtain the green pass: "The pass is already required in Italy for both tourists and nationals to enter museums, theatres, gyms and indoor restaurants, as well as to board trains, buses and domestic flights."

    The prime minister had earlier promoted the pass as a way to ensure no more lockdowns in already hard hit Italy, which has had an estimated 130,000 Covid-related deaths since the start of the pandemic.

    Meanwhile, the requirement of what's essentially a domestic Covid passport is practically catching on in other parts of Europe as well, with it already being required to enter certain hospitality settings in German and Greece, for example. Some towns in Germany have reportedly begun requiring vaccination proof just to enter stores. So likely the Italy model will soon be enacted in Western Europe as well.

    Tyler Durden Sat, 10/16/2021 - 07:35

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    Tracking Global Hunger & Food Insecurity

    Tracking Global Hunger & Food Insecurity

    Hunger is still one the biggest – and most solvable – problems in the world.

    Every day, as Visual Capitalist’s Bruno Venditti notes, more than 700 million people (8.8% of the world’s population)..

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    Tracking Global Hunger & Food Insecurity

    Hunger is still one the biggest - and most solvable - problems in the world.

    Every day, as Visual Capitalist's Bruno Venditti notes, more than 700 million people (8.8% of the world’s population) go to bed on an empty stomach, according to the UN World Food Programme (WFP).

    The WFP’s HungerMap LIVE displayed here tracks core indicators of acute hunger like household food consumption, livelihoods, child nutritional status, mortality, and access to clean water in order to rank countries.

    After sitting closer to 600 million from 2014 to 2019, the number of people in the world affected by hunger increased during the COVID-19 pandemic.

    In 2020, 155 million people (2% of the world’s population) experienced acute hunger, requiring urgent assistance.

    The Fight to Feed the World

    The problem of global hunger isn’t new, and attempts to solve it have making headlines for decades.

    On July 13, 1985, at Wembley Stadium in London, Prince Charles and Princess Diana officially opened Live Aid, a worldwide rock concert organized to raise money for the relief of famine-stricken Africans.

    The event was followed by similar concerts at other arenas around the world, globally linked by satellite to more than a billion viewers in 110 nations, raising more than $125 million ($309 million in today’s dollars) in famine relief for Africa.

    But 35+ years later, the continent still struggles. According to the UN, from 12 countries with the highest prevalence of insufficient food consumption in the world, nine are in Africa.

     

    Approximately 30 million people in Africa face the effects of severe food insecurity, including malnutrition, starvation, and poverty.

     

    Wasted Leftovers

    Although many of the reasons for the food crisis around the globe involve conflicts or environmental challenges, one of the big contributors is food waste.

    According to the United Nations, one-third of food produced for human consumption is lost or wasted globally. This amounts to about 1.3 billion tons of wasted food per year, worth approximately $1 trillion.

    All the food produced but never eaten would be sufficient to feed two billion people. That’s more than twice the number of undernourished people across the globe. Consumers in rich countries waste almost as much food as the entire net food production of sub-Saharan Africa each year.

    Solving Global Hunger

    While many people may not be “hungry” in the sense that they are suffering physical discomfort, they may still be food insecure, lacking regular access to enough safe and nutritious food for normal growth and development.

    Estimates of how much money it would take to end world hunger range from $7 billion to $265 billion per year.

    But to tackle the problem, investments must be utilized in the right places. Specialists say that governments and organizations need to provide food and humanitarian relief to the most at-risk regions, increase agricultural productivity, and invest in more efficient supply chains.

    Tyler Durden Fri, 10/15/2021 - 23:30

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    Retail And Food Sales: If It’s Not Inflation, And It’s Not, Then What Is It?

    OK, so we went through the ways and reasons consumer price increases are not inflation, cannot be inflation, are nowhere near actual inflation, and what all that really means. The rate they’ve gone up hasn’t been due to an overactive Federal Reserve,…

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    OK, so we went through the ways and reasons consumer price increases are not inflation, cannot be inflation, are nowhere near actual inflation, and what all that really means. The rate they’ve gone up hasn’t been due to an overactive Federal Reserve, so it has to be something else. This is why, though the bulge has been painful, it’s already beginning to normalize. Without a persistent monetary component (in reality, not what’s in the media) the economy will adjust eventually.

    It already has. Several times, and that’s part of the problem.



    If not money, and it’s not, then what is behind the camel humps? No surprise, Uncle Sam’s ill-timed drops along with reasonable rigidities in the supply chain.

    An Economist might call this an accordion effect. One recently did:

    The closures and reopenings of different industries, coupled with the surges and lags in consumer purchasing during the pandemic, have caused an “accordion effect,” says Shelby Swain Myers, an economist for American Farm Bureau Federation, with lots of industries playing catch-up even as they see higher consumer demand.

    Not just surges and lags, but structural changes that have been forced onto the supply chain from them. With the Census Bureau reporting US retail sales today, no better time than now and no better place than food sales to illustrate the non-economics responsible for the current “inflation” problem.

    When governments panicked in early 2020, they shut down without thinking any farther than “two weeks to slow the spread.” This is, after all, any government’s modus operandi; unintended consequences is what they do.

    The food supply chain had for decades been increasingly adapted to meeting the needs of two very different methods of distributing food products; X amount of capacity was dedicated to the at-home grocery model, while Y had been set up for the growing penchant for eating out (among the increasingly fewer able to afford it). Essentially, two separate supply chains which don’t easily mix; if at all.

    Not only that, food distributors can’t simply switch from one to the other. And even if they could, the costs of doing so, and the anticipated payback when undertaking this, were and are massive considerations. McKinsey calculated these trade-offs in the middle of last year, sobering hurdles for an already stretched situation back then:

    Moreover, many food-service producers have already invested in equipment and facilities to produce and package food in large multi-serving formats for complex prepared-, processed-, frozen-, canned-, and packaged-food value chains. It would be highly inefficient to reconfigure those investments to single service sizes.

    And if anyone had reconfigured or would because they felt this economic shift might be more permanent:

    For food-service producers, the dilemma is around the two- to five-year payback period of new packaging lines. Reinvesting and rebalancing a food-service network for retail is not a straightforward decision. Companies making new investments would be facing a 40 percent or more decline in revenue. And any number of issues could extend the payback period or make investments unrecoverable. Forecasts are uncertain, for example, about the duration of pandemic-related demand shifts, the recovery of the food-service economy, and the timeline of returning to full employment.

    So, for some the accordion of shuttered restaurants squeezed food distributors far more toward the grocery and take-home way of doing their food businesses. And it may have seemed like a great bet, or less disastrous, as “two weeks to slow the spread” morphed to other always-shifting government mandates which appeared to make these non-economics of the pandemic a permanent impress.

    More grocery, less dining. Forever after.

    In one famous example, Heinz Ketchup responded to what some called the Great Ketchup/Catsup? Shortage by rearranging eight, yes, eight production lines to spit out their tomato paste in individual servings rather than bottles. CEO Miguel Patricio told Time Magazine back in June (2021) there hadn’t actually been any shortage of product, just the wrong packaging for it:

    It’s not that we don’t have ketchup. We have ketchup, but in different packages. The strain on demand started when people stopped going to restaurants and they were ordering takeout and home delivery. There would be a lot of packets in the takeout orders. So we have bottles; we don’t have enough pouches. There were pouches being sold on eBay.

    But then…vaccines. Suddenly, after over a year of the above, by April 2021 the doors were flung back open, stir-crazy Americans flew back to their local pubs and establishments (see: below) and within months, according to retail sales, it was almost back to normal again. Meaning pre-COVID.



    The accordion had expanded back out but how much of the food services supply chain had been converted to serve the eat-at-home way which many companies had understandably been led to believe was going to be a lasting transformation?

    Do they undertake even more costly and wasted investments to go back? Maybe they resist, just shipping what they have even if not fully suited in the way it had been before all this began.

    Does Heinz spend the money to reconfigure those same eight production lines so as to revert to producing their ketchup in bottles? Almost certainly, but equally certain they’re going to take their sweet time doing it; milking every last ounce of efficiency – limiting their losses, really – they can out of what may prove to have been a bad decision (again, you can’t really fault Mr. Patricio for being unable to predict pandemic politics).

    Rancher Greg Newhall of Windy N Ranch in Washington likewise told NPR that he has the animals, beef, pork, lamb, chicken, goat, but distributors are caught in the accordion (Newhall didn’t use that term):

    NEWHALL: People don’t understand how unstable and insecure the supply chain is. That isn’t to say that people are going to starve, but they may be eating alternate meats or peanut butter rather than ground beef.

    GARCIA-NAVARRO: Newhall says he hasn’t had any issues raising his animals. It’s the processing and shipping that’s the bottleneck, as the industry’s biggest players pay top dollar to secure their own supply chains.

    The usual credentialed Economist NPR asked for comment first tried to blame LABOR SHORTAGE!!! issues, including those the mainstream had associated with the pandemic (closed schools forcing parents to stay home, or workers somehow deathly afraid of working in close proximity with others) before then admitting:

    CHRIS BARRETT: And there’s also the readjustment of the manufacturing process. As restaurants are quickly opening back up, the food manufacturers and processors have to retool to begin to supply again the bulk-packaged products that are being used by institutional food service providers.

    With US retail sales continuing at an elevated rate, the pressures on the goods sector are going to remain intense.


    Because, however, this is not inflation – there’s no monetary reasons behind the price gouge – the economy given enough time will adjust. And it has adjusted in some ways, very painful ways.

    Painful in the sense beyond just hyped-up food prices and what we pay for gasoline lately, the services sector has instead born the brunt of this ongoing adjustment. Consumers have bought up goods (in retail sales) at the expense of what they aren’t buying in services (not in retail sales); better pricing for sparsely available goods stuck in supply chains, seeming never-ending recession for service providers.

    According to the BEA’s last figures, overall services spending remains substantially lower than when the recession began last year. And it shows in services prices which had been temporarily boosted by Uncle Sam’s helicopter only to quickly, far more speedily and noticeably fall back in line with the prior, pre-existing disinflationary trend following a much smaller second camel hump.



    Once the supply and other non-economic issues get sorted out, we would expect the same thing in goods, too. It is already shaping up this way, though bottlenecks and inefficiencies are sure to remain impediments and drags well into next year.

    Those include other factors beyond food or domestic logistical nightmares. Port problems, foreign sourcing, etc. The accordion has played the entire global economy, and in one sense it has created the illusion of recovery and inflation out of a situation which in reality is nothing like either.

    That’s the literal downside of transitory. We can see what the price bulge(s) had really been, and therefore what it never was.

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