There’s never been a better time to be a self-guided passive income investor. As growth stocks look to take a backseat to unloved value stocks, I’d look to punch my ticket into the bargains that remain while their dividend yields are still skewed toward the higher end.
Consider shares of Canadian Tire (TSX:CTC.A) and Canadian Western Bank (TSX:CWB), which sport dividend yields of 2.8% and 3.8%, respectively, at the time of writing.
A top passive income pick in retail
Canadian Tire is a brick-and-mortar retailer that surprised everybody last year with its resilience amid the worst of the COVID-19 pandemic. The e-commerce platform did more heavy-lifting, and the short-sellers who previously targeted the stock have since been silenced.
Management has done an incredible job of weathering the storm, and shares of the Canadian retailer have since been rewarded. While the stock has more than doubled to $172 and change, I still see deep value to be had in a name that’s finally starting to get the respect of Canadian investors.
The company recently clocked in a “record-breaking” fourth quarter that saw same-store sales (SSS) surge 13%. E-commerce continued to flex its muscles, with sales surging nearly 180% year over year. The incredible numbers in a pandemic-plagued environment suggest that Canadian Tire has evolved with the times. It’s an omnichannel force to be reckoned with, and I think the stock is a buy following its stellar fourth quarter and upbeat guidance.
Moving forward, I expect Canadian Tire will continue to defy expectations as it looks to build upon its newfound strength. Once COVID-19 is conquered, and we enter an environment that some like to describe as “the roaring ’20s,” the stage could be set for Canadian Tire stock to make a move to the $300 mark.
Don’t stand in the way of the Canadian retail giant because you’ll get run over.
Greater value than the Big Six?
If you missed the rally in the Big Six Canadian banks, Canadian Western Bank stock might be a compelling catch-up trade. While the regional bank got crushed back in the February-March 2020 sell-off, it has since recovered most of the ground lost. Today, shares are down 25% from their January 2018 all-time highs and 15% from their 2019 pre-pandemic highs.
Undoubtedly, the Edmonton-based bank has been dealt a tougher hit to the chin amid the pandemic thanks in part to its greater exposure to the ailing province of Alberta. With West Texas Intermediate prices surging above the US$61 mark, Albertan exposure isn’t quite as scary as it was earlier last year, when oil prices tanked into the abyss, falling as low as the negative US$37.63 per barrel!
The underrated bank has done a spectacular job of managing through this pandemic-plagued environment given the tough hand it was dealt.
Moving forward, I expect CWB stock to continue correcting to the upside as COVID headwinds fade and loan losses continue to abate. On a longer-term basis, CWB stock could be due for a significant re-valuation to the upside as it continues spreading its wings into new geographies.
Like its bigger brothers, Canadian Western Bank is a high-quality bank with a track record of rewarding passive income investors with generous dividend hikes. In due time, the regional bank is capable of trading at a multiple that’s more in-line with its bigger brothers.
Speaking of wonderful businesses, check out these picks curated by the team here at the Motley Fool Canada.
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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Joey Frenette has no position in any of the stocks mentioned.