Why it’s the Right Time for Canadian Investors to Buy Dividend Stocks

Here’s how long-term stock investors in Canada can lock in high-dividend yields right now to earn reliable passive income.

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The Canadian stock market has seen a bumpy ride in 2022 so far. After inching up in the previous two quarters, the TSX Composite Index tanked by 13.8% in the second quarter (Q2), marking its worst quarterly losses since the start of the COVID-19 pandemic. While the third quarter started on a positive note, with the main Canadian market benchmark recovering by 4.4% in July, continued macroeconomic uncertainties kept investors on their toes in August.

With this, the TSX Composite trades with 8.1% year-to-date losses as of writing. While traders tend to flee riskier assets when the stock market falls, I find it to be a rare opportunity for long-term investors to buy some quality dividend stocks. Before I highlight one of the best dividend stocks in Canada to buy now, let me explain why it could be the right time for investors to consider buying high-dividend-paying stocks.

Why it’s the right time to invest in dividend stocks

It’s important to note that metal mining and energy stocks make up a large part of the TSX Composite Index. That’s why the commodity-heavy TSX index tends to outperform its peer indexes in the United States market when commodity prices start rising, and vice versa. Interestingly, most of the large, well-established companies from the oil and gas and mining sectors also reward their investors with high dividends in Canada.

As high inflation, rapidly rising interest rates, and a recent spike in geopolitical tensions have raised the possibility of a looming moderate recession in the last couple of months, investors have started dumping commodities, triggering a correction in crude oil and metals prices. This recent weakness in commodity prices has also led to a correction in some fundamentally healthy dividend-paying, commodity-related stocks.

As a company’s dividend yield is linked to its stock price, yields of some high-dividend-paying stocks in Canada have sharply gone up lately. If long-term investors invest their hard-earned savings in such dividend stocks amid the ongoing correction, they have a rare chance to lock in a high dividend yield, which could help them earn reliable passive income as long as they want. That said, now let me quickly highlight one of the best Canadian dividend stocks I find worth considering right now.

The best Canadian dividend stock to buy now

The Canadian energy company Enbridge (TSX:ENB)(NYSE:ENB) could be one of such great dividend stocks for long-term Canadian investors to consider right now. The company has a market cap of $113.8 billion, as its stock trades at $55.86 per share as of writing, with about 13% year-to-date gains. Despite its strong fundamentals, the stock has seen nearly 6% value erosion in the last three months.

After struggling with the global pandemic-driven energy sector-wide challenges in 2020, Enbridge posted a solid financial recovery in 2021. Last year, Enbridge registered a 20.4% year-over-year (YoY) jump in its total revenue to $47.1 billion, while its adjusted earnings for the year rose by 13.2% to $2.74 per share. Street analysts predict the positive growth trend in the energy firm’s earnings to continue in the ongoing year with a more than 6% expected YoY growth in the full-year 2022. Moreover, after its recent stock price correction, this Enbridge currently has an attractive dividend yield of around 6.2%.

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.

The Motley Fool recommends Enbridge. Fool contributor Jitendra Parashar has no position in any of the stocks mentioned.

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