With interest rates expected to rise once again before the end of the year both in Canada and the United States, it makes perfect sense that many value oriented companies have declined in value for two key reasons.
The first reason is that the yardstick (government bonds) have increased their rates of return, which translates to the dividend yields of mature companies seeming less attractive. Essentially the gap between the risk-free rate of return and the income stream from dividend-paying stocks has closed enough to no longer be worthwhile.
The second reason is that many of these mature companies have a substantial amount of debt, which now requires a higher amount of revenues in order to maintain. The company’s expenses will increase, which will lead to a decrease in the bottom line.
For investors seeking opportunities in the market, the good news is that there are a number of them available – all you have to do is look.
To begin with, shares of Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) have started to settle near a price of $120 per share, which currently translates to a dividend yield of almost 4.5%. As the bank continues to do business as usual in the Canadian market, the tailwind for earnings has been coming in steadily from the expansion south of the border. After buying two separate U.S. wealth management firms, the bank has been the benefactor of both a favourable exchange rate (for those holding U.S. investments) in addition to the bull run that has continued to drive asset prices higher south of the border.
The second name to load up on is none other than High Liner Foods Inc. (TSX:HLF), which at a price of $8.50 has become a much smaller company than investors would like. The good news from a declining share price, however, is that the dividend yield has risen to more than 6.75%, and the chances that this company will be acquired by a formidable suitor have increased drastically. To a larger food company, this name could provide excellent economies of scale and better pricing power to their already existing business.
The final name on the list is none other than Inter Pipeline Ltd. (TSX:IPL), which at a price of $25 per share is starting to look more and more attractive as the price of oil continues to move higher. In spite of falling out of favour over the past year, the company has made a nice comeback and is poised to continue its upward momentum once again. At current levels, the company offers a dividend yield of no less than 6.75%, which could jump much higher as more oil is produced and transported through the company’s pipeline. Essentially, the high price of oil is what will drive this name higher.
With so many fantastic opportunities for investors to choose from, the most important factor to weigh is where one wants to make their bet. Depending on what major factor (oil, interest rates, takeover attempts) each investors believes is most likely, the dividend could just become the tip of the iceberg!