Hedging Interest Rates: TD Bank and Algonquin Power

Comments on earnings by two companies on the opposite sides of interest rates.

TD Bank Q1 2018 $1.56 vs. estimates of $1.47

-“All of our businesses are performing well and the operating environment remains favourable”, said CEO Bharat Masrani.

-Among the Canadian Big 5 banks, TD has the largest footprint in the US, where those operations stand to benefit from the recent tax cuts.

-TD increased their dividend 11.7% (5-year average 10.4%), a great sign from management and even better for long term investors.

-Canadian retail earnings rose 12% while US retail earnings rose 23%.

-As interest rates continue to rise, these tailwinds will continue to propel TD’s earnings and dividends to record highs.

Algonquin Power and Utilities Q4 2017 $0.20 vs. estimates of $0.15

-“We are pleased to report that 2017 was a year of unprecedented growth and record financial results across the organization”, said CEO Ian Robertson.

-Algonquin Power bring the stability of a utility combined with impressive growth not seen in the sector.

-Dividend growth 5-year average: 16%.

-Q4 ’17: Revenue up 69% to $523 million, adjusted earnings up 11% to $0.20 per share.

-FY ’17: Revenue up 80% to $1.98 billion, adjusted earnings up 30% to $0.74 per share.

-Compared to TD, interest rates are a headwind for Algonquin’s business, but management is confident in their ability to increase cash flow, earnings and dividends.

The Hedge

-By holding a equal position in a financial business as well as a utility business, both with consistent dividend growth, a theoretical hedge can be placed.

-A faster pace of rising interest rates will benefit financials, while a slower to negative pace will benefit utilities.

-TD and Algonquin both have a history of increasing their dividends, making them sold businesses to hold through good times and bad.

-These core holdings should be added too when stock prices fall and dividends yields RISE, maintaining a proper portfolio weight.


I hold a position in both TD Bank and Algonquin Power and Utilities.

Please consult a financial advisor before making investment decisions.

This report represents my views, not actionable advice.