High yield dividend stocks aren’t all that easy to find these days. The stock market rallied in the first half of 2023, resulting in many high yield opportunities disappearing. These days, the S&P 500 has only a 1.54% dividend yield. Canadian markets are a little better, at a 3% yield, but still nowhere near the yields now available on guaranteed investment certificates (GICs).
Nevertheless, there are many opportunities in dividend stocks if you know where to look. Many energy and banking stocks are way down from their all-time highs. If the momentum in these stocks picks up in the year ahead, then their present high yields will evaporate. So, it may be a good idea to buy shares in energy and banking today. With that in mind, here are three dividend stocks down 18% to 31% that may be worth buying right now.
Enbridge
Enbridge Inc (TSX: ENB) is a Canadian energy and utility stock that is down 18.4% from its all-time high. Sporting a 7.4% dividend yield, it has a lot of income generating potential.
Why does ENB stock have such a high yield?
For one thing, ENB has fallen somewhat lately, as previously mentioned. For another thing, the company has been raising its dividend consistently over the years. Over the last 10 years, ENB’s dividend has risen by an 11% CAGR. “CAGR” means compounded annual growth rate; it’s a measure of annual growth.
On the other hand, Enbridge has a very high payout ratio (dividend divided by earnings). The company currently pays out more in dividends than it earns in profit or free cash flow, so the dividend might not be the most sustainable. With that said, ENB has suffered downturns in its earnings before and still managed to pay its dividend, so maybe the company’s business model is resilient enough to handle a temporarily high payout ratio.
Bank of Nova Scotia
The Bank of Nova Scotia (TSX: BNS), otherwise known as “Scotiabank,” is a Canadian bank stock that is down 31% from its all-time high. It currently has a 6.5% dividend yield. The stock is down so much because its most recent earnings releases weren’t very good. In its most recent quarter, BNS’s revenue and earnings both declined. Most TSX banks saw earnings decline in the most recent quarter, because their loan loss reserves increased, but few of them saw their revenue fall like Scotiabank did. So, BNS had a comparatively tough time by the standards of its peers. However, the company only has a 55% payout ratio, so the dividend, at least, is safe.
First National
First National Financial (TSX: FN) is a Canadian mortgage lender whose shares are down 23.7% from their all-time high. It’s very peculiar that FN stock is down so much, because it’s actually doing quite well as a business. In its most recent quarter, its revenue increased 26% and earnings per share (“EPS”) increased 47%. It was a pretty impressive showing. Interest rates are going up this year, so mortgage lenders like FN can make a lot of money off the current economic conditions. It’s a win-win situation that may enrich investors in the year ahead.
