In 2023, investors have an opportunity to “buy the dip” in dividend stocks. Last year, dividend stocks were outperforming the markets, as growth stocks fell out of favour. This year, the situation has reversed, as investors have piled into tech stocks in anticipation of future growth.
So far, dividend stocks have been underperformers. Banks have fallen in price, and energy stocks have collectively risen just 4.5%. Oil companies are down significantly from their summer 2022 highs. It’s a difficult time for many dividend-paying companies. However, the situation could reverse later in the year, bringing yield and gains for investors who buy the dip now.
In this article, I will explore three Canadian dividend stocks that have very high yields.
Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS), otherwise known as “Scotiabank,” is a Canadian bank with a 6% dividend yield. It is in the middle of a significant dip, having fallen 8.81% from its February 2023 high ($74.13).
Is Bank of Nova Scotia a good company?
In general, it has not performed as well as certain other Canadian banks over the last five years. In that timeframe, it has only managed to grow its revenue by 4% per year and its earnings by 1.3% per year. Its peer banks have delivered much better growth in the same timeframe. TD Bank, for example, has grown its earnings by 8.8% annualized over the last five years.
Will Scotiabank be able to turn this situation around?
There are some signs that it could. Scotiabank has foreign operations in Latin America — a region that some think could deliver strong economic growth in the years ahead. If Latin America succeeds in growing, then Scotiabank’s foreign operations could share in its success, though, for now, the region remains risky and less lucrative for BNS than the U.S. is for other Canadian banks.
Canadian Imperial Bank of Commerce
Canadian Imperial Bank of Commerce (TSX:CM), otherwise known as “CIBC,” is another Canadian bank stock that has a 6% dividend yield. It is in the midst of an even bigger dip than Scotiabank is, having fallen 10% from its February highs.
Why is Canadian Imperial Bank of Commerce stock down so much?
Like many banks, CM got hit hard by the U.S. banking crisis. Depositors pulled their money out of small U.S. banks and put it into large ones, resulting in several banks failing. Canadian banks did not fail, but their shares fell anyway because of sector-wide selling of financial stocks.
There is a perception that CM is more financially vulnerable than other Canadian banks. In the 2008 financial crisis, TSX banks were mostly unscathed, but CIBC was a possible exception. It did not teeter on the brink of failure, but it did take billions in losses on its U.S. subprime mortgage investments. That was a long time ago, but the perception that CIBC’s risk management is not as good as that of other Canadian banks has lingered.
Apart from that, CM has not grown in recent years. Its revenue growth rate (5% per year) is a little better than that of Scotiabank, but its earnings growth has been much worse. Growing at 0.68% per year, CM’s earnings aren’t keeping up with inflation. However, the company’s margins are healthy enough that it can pay its 6% yielding dividend without too much trouble. It’s a reasonably safe investment for an income-oriented investor.