Returns may be harder to come by going into 2022 after another unbelievable year for markets, making a strong case for stock picking. There are many Canadian value stocks out there that can help investors get a slight edge, beating the TSX Index over the next few years. Remember, just because prospective returns are expected to be lower does not mean one has to settle for meagre returns that may be lower than the inflation rate. Undoubtedly, insisting on secure and healthy dividends can help one do relatively well, even if broader markets flatline for a prolonged period of time.
Indeed, we’ve witnessed many rolling corrections over the last year and a half. Those 10% corrections have been fewer and farther between, making it hard for dip buyers to improve their prospective returns. Undoubtedly, markets could continue fluctuating over a prolonged period, giving investors less attractive entry points over the year ahead. That’s why undervalued Canadian stocks and high-yield plays may be crucial to faring well in a harsher market environment that has too much liquidity chasing even the most modest of dips.
That doesn’t mean you should rule out a 10-20% correction in 2022, however. Negative surprises are always possible, and such dips should be treated as opportunities to buy shares of wonderful businesses at a discount. It is wise to keep some cash on the sidelines to be ready for such dips. That said, one should not try to time them, because markets can go many quarters or even years without such pullbacks, leaving those waiting with too much cash vulnerable to higher inflation.
The case for buying Canadian value stocks in 2022 and beyond
Undoubtedly, there’s a fine line between hoarding too much cash and not having enough for a shocking market pullback. For investors who are feeling the pressure of inflation and have more than enough liquidity to put to work come the next correction or semi-correction, it’s worth nibbling on today’s slate of value plays and gradually over time, regardless of where Mr. Market pushes us next.
Consider top-notch insurer Sun Life Financial (TSX:SLF)(NYSE:SLF), with its 3.1% yield or mega-high-yield European-focused office property play Inovalis REIT (TSX:INO.UN), which currently sports a hefty 8.6% yield. Both names look cheap and can help investors better combat inflation and improve their portfolio’s prospective returns versus the markets.
Sun Life
Sun Life didn’t waste time hiking its dividend after regulators gave the signal. The Canadian life insurer boosted its quarterly dividend by 20% — a very generous hike that investors can appreciate. At 11.7 times trailing earnings, the stock is arguably one of the cheapest mega-caps out there. And as the macro environment gradually improves for the financials, I think Sun Life is one of many Canadian value stocks that could begin to really wake up.
Although the stock is at a fresh all-time high, better-than-expected results could easily support a continued rally towards the $80 mark over the next 18 months.
Inovalis REIT
Inovalis REIT is an office property REIT with a massive 8.6% yield. The payout is safer than it looks, though; under normal conditions, the security tends to yield just shy of the 8% mark. Call it a super-high yielder, if you will. While the distribution is incredibly bountiful, investors shouldn’t expect much capital gains, even over a long-term timespan.
After doing virtually nothing over the past five years, Inovalis is not a name to trade. Shares are pretty uneventful, but for those looking for steady passive income in an inflationary environment alongside subtle reopening upside, it’s tough to match Inovalis’s value proposition with shares at $9 and change.
