A good company that you are planning on holding for years (or decades) may be worth buying at any given time, regardless of the market conditions. However, buying these companies at the right time can enhance the return potential.
If you buy them near the peak of a bullish phase (which may be followed by a correction), you may suffer from a temporary devaluation of your capital, and when the correction is taken into account, your overall returns wouldn’t be as high as they would be for investors that bought the same stock at a discounted price. Buying them at a discounted price may enhance the return potential, especially for dividend stocks.
Buying top dividend stocks when they are in a slump (from which they are highly likely to recover) helps you lock in a higher yield and improve the capital-appreciation potential by adding recovery to the equation. The market is currently offering good opportunities to buy amazing dividend stocks at a discounted price, though they may not remain available as we move deeper into 2023.
An energy stock
Whether you call it a correction or simply a reaction to weakening oil prices, the energy sector in Canada is vulnerable right now. The benefit of this sector-wide weakness is that you can buy aristocratic giants like Enbridge (TSX:ENB) at a modestly discounted price. The 14% discount (from its 12-month peak) has pushed its yield up to a highly attractive 6.95%.
The Canadian energy giant is a great dividend pick for multiple reasons, starting with its business model. The pipeline business has better financial stability than most upstream and downstream businesses. This, coupled with its market cap, makes it one of the most stable energy stocks in Canada.
As for the dividends, the company has maintained and grown its payouts through some of the toughest times for the Canadian energy sector, which gives it a lot of credibility from a dividend sustainability perspective.
A telecom company
Another aristocratic giant and a top dividend stock you may consider investing in is Telus (TSX:T). The second-largest telecom company in Canada (by market cap) may not match Enbridge’s yield, but it offers similar stability (as a market leader) and better capital-appreciation potential.
The stock for Telus has appreciated by about 55% in the last decade, and if you add in the dividends, the overall returns become far more substantial (140%). The company has organic growth opportunities tied to 5G, which it shares with the other telecom giants in the country.
Then there are growth opportunities that are connected to its business model and diversified operations, including virtual health and home security.
The stock has fallen over 21% from its peak in the last 12 months, and this price discount comes with an inflated (and attractive) 5.1% yield.
A mortgage company
Even though many inventors prefer to stick to larger dividend payers, there are plenty of amazing picks among small-cap stocks. One great example is MCAN Mortgage (TSX:MKP), a residential and commercial mortgage lender with a market capitalization of just $525 million. However, the company has experienced modest growth over the last two decades and is offering a mouthwatering 9.4% yield.
The yield comes with a decent price and valuation discount. It’s not a Dividend Aristocrat per se, but it has been growing its payouts for a few years now. The payout ratio has stayed at a healthy level for the past several years and endorses its dividend sustainability.
The top dividend stocks are already quite attractive, but if the current pattern continues further into the year 2023, you may be able to snatch these stocks up at a higher discount and better yields. The dividends alone might be worth holding these stocks for, but you might also see decent growth once the market goes bullish.