It has been a rather eventful June 2023 for the stock markets. Tech continues to flex its muscles to the crowd, while most other sectors are sitting on the sidelines. Undoubtedly, the AI boom could go on for quite a while. But I’m personally not comfortable buying into such a trend at today’s slate of prices. Sure, new technology could change everything, but it can be hard to pick the winners from the losers.
Indeed, today’s AI winners seem so obvious. However, after a nice run year to date, you could risk paying up for a multiple that factors in many years’ worth of enhanced growth. And you’ll pay the premium right off the bat. I don’t want to pay up for too many years’ worth of growth right here. That’s why I’d much rather rotate toward some of the market’s high-yielding dividend stocks.
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Some top TSX dividend stocks are getting cheaper
Dividend stocks may be somewhat less favourable these days, with such a generous risk-free rate. However, the slightly swollen yield on some names alongside potential upside, I believe, makes risk assets (especially high-quality dividend stocks) a better bet for most investors who are willing to hold for the next five years at a minimum.
In a high-rate environment, risk-free assets are more competitive. Remember the “there is no alternative” (TINA) days? They seem to be over. Nowadays, there are plenty of alternatives to stocks. Bonds are even worth exposing yourself to as yields approach impressive heights not seen in many years.
In this piece, we’ll check out two dividend dynamos with yields at or around the 7% level.
TC Energy
TC Energy (TSX:TRP) stock slipped more than 2% on Friday, sending the yield to around 7.2%. That’s really high for the North American pipeline company. Unfortunately, the swollen yield is thanks to the slumping stock, which is down more than 31% from its all-time highs. In 2020, shares ultimately peaked at nearly $76 per share. Though the early-2022 rally brought shares close to a new high, the slump came fast, and it was brutal for investors.
Even though the market is showing signs of life this year, TRP stock has continued to drag. Today, the stock’s closing in on a 52-week low of $51 and change. I think the stock looks like a great buy right here, while the yield is still above 7%.
Enbridge
Enbridge (TSX:ENB) is another midstream energy giant (likely one that yield-hungry folks are more familiar with) that’s also seen shares fall under considerable selling pressure. The stock fell over 1% on Friday, bringing the yield to 7.44%. ENB stock is at a new 52-week low of around $47 and change per share.
Enbridge stock is off around 19% from its high now. And though negative momentum makes Enbridge look like a falling knife in a hostile macro environment, I’d argue contrarians have a lot to love about the pipeline beast as it experiences another painful fall.
Earnings growth may have stalled, but don’t count on the 27-year dividend-raise streak ending anytime soon. The company will find a way around this crisis. And when it does, the stock will likely be much higher from here, with a yield that’s much less swollen.
Bottom line
Just because risk-free may be attractive doesn’t mean you should not take any risk, even with a recession considered. Why? If you can get in at the right price (low valuation), you can set yourself up for substantial total returns (dividends and gains) over a long-term horizon.
