2 TSX Dividend Stocks Offering Big Income in a Bearish Market

A bear market is the time to buy dividend stocks and lock in long-term income. Here are two stocks that can give you 8–9% annual income.

| More on:

Image source: Getty Images

This year was bearish as the central banks hiked interest rates to pull out the stimulus money they injected into the economy during the pandemic. When money leaves the economy, the stock market plunges. The 2022 bear market has created an opportunity for value investors to lock in some big income for the long term. 

Something about dividend stocks

Recently, a mid-cap dividend stock Algonquin Power & Utilities plunged 35% after it reported weak earnings. The rising interest expense reduced the company’s net income by 25%. Moreover, negative free cash flow reduced investors’ confidence in the company’s ability to sustain its high dividend. A similar situation happened with several REITs during the pandemic. 

But there is something you need to know about dividend stocks. They are companies that have demand and enjoy streaming cash flows. They also have significant debt. But because these stocks don’t give as much in capital appreciation as growth stocks, dividends are the major source of returns. As an equity shareholder, you accept both the risks and rewards the company faces. There is a risk of dividend cuts in a recessionary environment, but there is a reward of dividend growth in the long term. 

When buying a dividend stock, keep a long-term investment perspective. A bear market is a time to buy such stocks at a significant discount. Here are two TSX stocks offering an opportunity to lock in big income in the 2022 bear market. 

A REIT that offers big income 

Slate Office REIT (TSX:SOT.UN) stock price fell 11% this year, which increased its distribution yield to 8.9%. What does this mean? Slate’s annual dividend per share remains at $0.4, but you can now get this passive income for $4.45 instead of $5.2 a share. The REIT will continue to pay monthly distributions as long as it exists because a trust is required to pay a significant portion of its cash flows to its shareholders. 

Therefore, you need to focus on the distributable cash flows (DCF) and how much the REIT is paying as distributions. A 70–80% payout ratio is sustainable, considering the ups and downs in rental income. If the DCF falls 20% in a particular quarter, the REIT can adjust the cash flows and maintain the distribution. But if this situation persists for a longer time, the REIT might cut distributions, as it did in 2019. 

Slate Office REIT’s current DCF can sustain its distributions as its payout ratio is around 75%. Moreover, the REIT used the dip in property prices to offload low-yielding properties and buy high-yielding properties with strong tenant bases. 

If you invest $1,000 in the REIT, you can lock in annual cash flows of ~$90 for the next few years while your principal investment remains in the $900-$1,100 range. 

A mortgage company with a big income 

Another good dividend stock is Timbercreek Financial (TSX:TF). The stock price fell by 21% this year, which increased its dividend yield to 9.16%. So you can lock in a $0.69 annual dividend per share for $7.54. The company provides short-term mortgages to commercial properties. As interest rates increased, the company’s interest income surged by $8 billion in the third quarter

However, higher interest rates slowed loan origination volumes, reducing its income from processing fees by $1 billion. However, its third-quarter net income increased 30% year over year, demonstrating the company’s durability through market cycles (as noted by Timbercreek’s CEO, Blair Tamblyn). Timbercreek management expects to continue paying its annual dividends. In the worst-case scenario, the company might halve dividends to $0.35, which equates to a 4.5% yield at the current stock price of $7.54. 

If you invest $1,000 in Timbercreek, you can lock in $90 in annual cash flow. Your principal investment will likely hover between $900 and $1,200. 

Investing tip

When you invest in a fundamentally strong stock on the dip, your downside risk is reduced while the upside increases. The above stocks are risky. So ensure you have a significant portion of your portfolio invested in dividend aristocrats like Enbridge and Canadian Utilities. They are less risky than small and mid-cap stocks. 

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 Puja Tayal has no position in any of the stocks mentioned. The Motley Fool recommends Enbridge. The Motley Fool has a disclosure policy.

More on Dividend Stocks

Target. Stand out from the crowd
Dividend Stocks

1 Dividend Stock Down 30% to Buy Right Now

Keyera is an energy infrastructure company that pays shareholders a forward yield of almost 6%. Is KEY stock a good…

Read more »

oil and natural gas
Dividend Stocks

Suncor Stock Is Rallying: Should You Invest?

Energy stocks like Suncor Energy Inc (TSX:SU) are rising with oil pries.

Read more »

A worker gives a business presentation.
Dividend Stocks

TSX Communications in April 2024: The Best Stocks to Buy Right Now

Here are two of the best TSX communication stocks you can buy in April 2024 and hold for years to…

Read more »

Man considering whether to sell or buy
Dividend Stocks

Royal Bank of Canada Stock: Buy, Sell, or Hold?

Royal Bank of Canada (TSX:RY) has a high dividend yield. Should you buy it?

Read more »

Businessman looking at a red arrow crashing through the floor
Dividend Stocks

BCE’s Stock Price Has Fallen to its 10-Year Low of $44: How Low Can it Go?

BCE stock price has dipped 39% in two years and shows no signs of growth in the next few months.…

Read more »

Dollar symbol and Canadian flag on keyboard
Dividend Stocks

Invest $10,000 in This Dividend Stock for $3,974.80 in Passive Income

This dividend stock gives you far more passive income than just from dividends alone, so consider it if you want…

Read more »

Payday ringed on a calendar
Dividend Stocks

This 6% Dividend Stock Pays Cash Every Month

Can a 6% dividend yield help you build a monthly retirement income? An investment made right can help you build…

Read more »

Payday ringed on a calendar
Dividend Stocks

Passive Income: How Much Should You Invest to Earn $1,000 Every Month?

These three monthly-paying dividend stocks can help you earn a monthly passive income of $1,000.

Read more »