The Canadian stock market has largely recovered. Using iShares S&P/TSX 60 Index ETF as a Canadian stock market proxy, the Canadian stock market has about 4.4% to go before it revisits its previous high.
The market doesn’t appear to be bearish. However, within the stock market, there are many growth stocks that are still a long way off from their previous heights. Let’s forget about growth stocks that have plummeted for now and focus on dividend stocks that can continue to pay big income in a bearish market.
Capital Power stock
Capital Power (TSX: CPX) is a growing power producer in North America. It has 29 facilities with a power-generation capacity of approximately 7,500 megawatts. The company highlights that it has a highly contracted, young, and diversified portfolio. Like other utilities, it’s also walking the path of cleaner energy generation by growing its natural gas and renewable assets.
It has been a decent dividend stock by increasing its dividend at a compound annual growth rate (CAGR) of 6% in the last decade. At $42.54 per share at writing, it offers a dividend yield of 5.4%, which is relatively high for a utility and perhaps compensates investors, somewhat, for the volatility that it might experience in the Albertan power market. Notably, the company aims to continue to increase its dividend by about 6% per year through 2025. Analysts believe the undervalued stock trades at a discount of 17%.
Bank of Nova Scotia stock
Bank of Nova Scotia (TSX: BNS) stock pays a relatively high dividend yield versus its Canadian bank peers. For reference, BMO Equal Weight Banks Index ETF yields about 4.4%, but BNS stock yields almost 6% at $68.93 per share at writing!
The bank stock is attractive for income-hungry investors with its big, but sustainable dividend. Moreover, on a reversion to the mean, undervalued Bank of Nova Scotia stock can climb over the next few years for upside of approximately 36%. Between its dividend and price appreciation, investors are highly likely to beat inflation in the long run and, therefore, more than maintain their purchasing power.
Manulife stock
If you like big income, you can turn to life and health insurance company Manulife (TSX: MFC). For some reason, it persistently trades at a discount to its peer Sun Life. At writing, Manulife trades at a discount of about 19%, but analysts expect it can grow its earnings faster than Sun Life over the next three to five years. If the company does grow its earnings at a CAGR of about 7.4% over this period, it could close the valuation gap, resulting in annualized total returns of approximately 13-16%.
At $26.22 per share at writing, Manulife trades at about 8.3 times earnings. At this quotation, it offers a sustainable dividend yield of close to 5.6%.
Investor takeaway
You can get paid well with these dividend stocks no matter where the stock market heads next. Between the three stocks, you can get an average dividend yield of almost 5.7% on an equal-weight portfolio. That’s 83% greater in income than what the Canadian stock market offers!
