Dividend heavyweights are great buys, regardless of what’s troubling the rest of the market. As the worries of recession begin to move in, investors can improve the shots of getting more for less. Of course, recessions can rock even the largest and steadiest of dividend behemoths. Regardless, brave market participants looking to invest for the next five years should not worry about the bumpier road that could lie ahead.
Recessions come and go. The companies that can manage through such dark times will fluctuate but will be ready once it comes time for the economy to expand again. Indeed, when economic fundamentals begin to decay, it’s hard to even think about better times. When most others are in despair and expectations are set unrealistically low, that’s when the risk/reward scenario tends to be best.
Warren Buffett is an advocate of being “greedy when others are fearful and fearful when others are greedy.” It’s easy advice that’s hard to follow.
The best bargains tend to arrive when others lose hope
Undoubtedly, it’s hard to sell a stock when everyone around you is making big money on the daily. It’s also hard to be a buyer when everyone else is ready to throw in the towel on stocks after a grueling year-long bear market. Not only do you need the temperament to act contrarian, but it helps if you have the patience to deal with the continued bumps in the road prior to any stock purchase.
The market doesn’t care when you bought a stock. A downward trend can continue after you’ve bought. Dips can keep on dipping. Instead of watching closely after buying against a trend, you should think about your dip buys as planting seeds. These seeds take time to bloom. All you can do is continue adding water and laying more seeds in the soil. In the context of investing, dollar-cost averaging is akin to adding water. And other dip buys over time may be seen as planting more seeds.
Indeed, investing in bearish times is hard. But history suggests going against the grain can be very rewarding over extended durations.
Enbridge (TSX:ENB) is a pipeline giant that sports a 6.75% dividend yield. The stock has dipped around 10% off its May 2022 high. Thanks to regulatory roadblocks and macro headwinds, Enbridge has been a rockier ride, but one that I believe is worth riding.
The company has kept its dividend intact through harsher times (think back to when oil went briefly negative in 2020). Looking forward, I expect the company to continue raising its dividend, even as headwinds weigh down on its growth rate.
Management expects 4-6% CAGR (compound annual growth rate) in earnings before interest, taxes, depreciation, and amortization through 2025. After that, the growth rate is expected to average around 5%. Even as energy prices cool in a recession, I think Enbridge investors can continue to look forward to annual dividend hikes.
TD Bank (TSX:TD) is another dividend heavyweight that’s looking too cheap to pass up. The stock trades at 9.4 times trailing price-to-earnings ratio, which is on the low end of the historical range. Undoubtedly, investors are bracing for provisions that accompany economic contractions. Still, TD is poised to manage through a recession en route to greater growth in the next expansionary cycle.
For now, the First Horizons deal is a question mark that could hit coming quarters. Longer term, though, I view First Horizons as a compelling piece to TD’s growth story. My takeaway? TD stock’s 4.4% dividend yield is worth buying into.