The battle between GICs (Guaranteed Investment Certificates) and bonds versus dividend stocks is on. These days, GICs and bonds sport some pretty juicy rates. That said, so too do a lot of dividend stocks, especially those that are still off considerably from their all-time highs. As you may already know, the lower a share price goes, the higher the yield climbs.
Of course, investors must be careful to ensure they’re not hit with a dividend reduction. When it comes to some of the steadier high yielders, however, I do think payouts are safe enough to make it through a period of economic sluggishness without so much as a reduction.
Remember, just because a dividend payout is stretched doesn’t mean it’s bound to be cut by 50% or more.
In any case, it pays dividends to analyze a company’s cash flows and its history of navigating challenging environments. Recessions and contractions will always happen. As such, it’s a good idea to stay in the know, even when it seems like stocks can only roar higher.
So far this year, stocks have been in rally mode. It could last into the second half, or it could end in a market correction.
Regardless, not all stocks have been heating up this year. And it’s these such names that may also be spared come the next inevitable market pullback. In this piece, we’ll have a look at two dividend stocks that I believe are rich with value and could begin to pick up the pace over the next two years.
IA Financial
IA Financial (TSX:IAG) is a relatively small player in Canada’s insurance scene with a $9.4 billion market cap at the time of writing. With a 3.46% dividend yield and a mere 8.6 times trailing price-to-earnings multiple (9.4 times forward price-to-earnings), IAG is also a relatively low-cost way to get a magnificent dividend juggernaut.
Today, the stock is down around 2% from its all-time high of around $92 per share. Indeed, IA Financial has something to brag about, with more than 13% in gains year to date. Though you could obtain a larger yield with one of IA’s insurance peers, I’d argue that IA’s recent history of impressive performance is very likely to lead to more of the same over the next several years, recession or not.
To put it simply, IA’s an insurance (and wealth management) winner that can and will keep winning.
Royal Bank of Canada
Royal Bank of Canada (TSX:RY) is one of the dividend juggernauts you can buy and hold for decades. The $175.8 billion financial behemoth has been through all sorts of different environments, and it has managed to climb out of the abyss rather quickly. Undoubtedly, Canada has some of the best-capitalized banks on the continent. And Royal is arguably one of the best-managed banks from a risk perspective.
As you’d imagine, such a well-run bank ought to be worth a premium. The stock currently trades at 12.5 times trailing price-to-earnings, with a 4.32% dividend yield. The stock’s down around 14% from its highs and may be a better long-term bet than bonds or even GICs from a total return viewpoint.
Dividend stocks or GICs and bonds?
GICs and bonds are not a bad investment here. They’re quite great actually!
Arguably, new investors should seek exposure to both risk (dividend stocks) and risk-free (GICs) assets at this juncture. If you’re younger and willing to take a shot at a greater long-term gain, I’d go with dividend stocks like IAG or RY. You’ll get a nice dividend, gains potential, and dividend growth potential!
