As the broader stock market looks to move into the summer season, Tax-Free Savings Account (TFSA) investors who haven’t bought anything with their latest contribution may wish to put some names on their radar. As we move closer to a potential downturn (Canada could experience a mild recession as soon as the second half of 2023), stock prices may come in a bit. And when they do, it’s important to be ready, so you’re not left sitting on the sidelines as valuations become that much better.
Indeed, TFSA investors should be all about the value these days. At the end of the day, the most insistent you are on a wide margin of safety, the lower your odds will be of truly catastrophic losses. Indeed, such a value mindset can get you out of trouble when the tides turn viciously as they did at the beginning of last year.
So far, it’s been hard-hit mega-cap tech plays that have been standing tall. Whether they continue to do so going into the summer months remains the million-dollar question. Regardless, TFSA investors should be insistent on stretching every dollar as far as it can go.
Dividend stocks worth watching for TFSA investors
In this piece, we’ll consider two intriguing Canadian dividend stocks that have fallen under some pressure of late. While I’m not prepared to call a “bottom” in either name, I think both stocks are worth watching, as valuations look to contract further.
First up, we’ll have a look at agricultural commodity producer Nutrien (TSX: NTR) to see how it’s doing after a solid 2022. Next, we’ll check in with IA Financial (TSX: IAG), a stellar Canadian insurer that I think is one of the best-run financials in the country.
Year to date, Nutrien stock is down around 17% and more than 42% off its all-time high just north of $140 per share. Meanwhile, IA Financial is dipping modestly after a robust rally, down over 6% from its all-time high but up around 7% on a year-to-date basis.
Nutrien
Nutrien is down big-time from its highs, as the firm’s tailwinds become somewhat less powerful. Despite this, Nutrien remains a best-in-class fertilizer play that stands to benefit from a rising global population and demand for higher crop yields. The stock’s plunge has been violent of late. Indeed, it can be difficult to catch a falling knife, as earnings and fertilizer prices begin to slide.
That said, all of the 2022 gains have been wiped out and with a modest single-digit trailing price-to-earnings (P/E) multiple (around 7.6 times forward P/E), I view Nutrien as getting a tad too cheap. The 3.4% dividend yield is bountiful, well covered, and could grow at a decent rate over time.
If you lack commodity exposure, I’d look to Nutrien’s dive as a potential opportunity for TFSA investors.
IA Financial
IA Financial is a Canadian financial underdog that’s not really down that much from its high. Still, I view any mild pullbacks as unwarranted, given the wonderful managers running the show.
The stock trades at 11.2 times trailing P/E at the time of writing alongside a dividend yield just north of the 3% mark. Undoubtedly, IA isn’t the cheapest financial and the dividend yield is certainly not massive. That said, in terms of risk and reward, I view IA favourably over many of its peers. If you’re a TFSA investor seeking steady appreciation and a sound dividend, the name is worth adding to your radar right now.
