In a normal market, the news that Aritzia Inc.'s initial public offering was boosted to $400-million because of strong institutional demand would be stellar news. "Risk on," we'd say. The end of investor dithering.
But this is not a normal market and it hasn't been for a long time. Despite scorching share prices in many sectors, which normally make investors more aggressive, would-be buyers are still showing their thirst for safe and stable yield.
The effect is a double-edged sword. Canadian companies desperate for fresh funds, particularly those in resources, must find ways to please these fickle investors while issuers who can afford to cough up healthy payouts have seen their financing windows fly open.
The string of recent deals illustrates just how much yield products still matter. Although large energy deals for Encana Corp. and Crescent Point Energy Corp. have largely stolen headlines, beyond them there has been a steady flow of yield-driven financings since the start of August.
Late last week, Alberta-based Capital Power Corp. announced plans to raise $150-million by selling preferred shares that paid 6 per cent annually. The company's common shares have suffered over the past few years because it is in the business of power generation and owns a number of coal-fired power plants that have fallen out of favour as the West embraces cleaner energy policies. The juicy yield, however, was enough to outweigh those concerns, and on Friday, the preferred share offering was increased to $200-million.
Similar increases were seen in recent preferred share issues by Bank of Nova Scotia and Toronto-Dominion Bank. TD's deal was particularly lucrative. The 4.85 per cent annual yield lured so many investors that the deal size jumped to $1-billion from $300-million.
Convertible debentures are also in favour, with recent deals launched by Cargojet, Just Energy and Liquor Stores, which raised $352-million combined. At the same time, Canadian real estate investment trusts are particularly hot, and now that the sector has rebounded from its broad sell-off over the past three years, investors are lunging for its monthly distributions again. The average annual yield for the S&P/TSX Capped REIT Index sits at 5.7 per cent.
The list of recent real estate issuers includes ProREIT, Automotive REIT, Cominar REIT and Slate REIT. Companies that are in the same industry and hand out hefty payouts, but aren't structured as investment trusts, are also benefiting, with the likes of First Capital Realty and Mainstreet Health also successfully raising equity.
That Canadians still crave yield is rather extraordinary. This month marks the eight-year anniversary of the September when the global financial systems nearly collapsed. Nearly everyone expected a return to normalcy by now.
However, central bank interest rates remain incredibly low around the developed world and benchmark government bond yields in these countries are still paltry – in many cases, they're even negative, particularly in Japan and Europe.
Equity markets themselves can also be misleading, especially in Canada. The S&P/TSX has been hovering near 14,500 for a few months now. Normally that would encourage investors, and more often than not spur a buying spree. But within the total index, resource company share prices remain depressed, which means much of the gain is coming from dependable sectors with decent payouts, such as banking and telecommunications.