Rising interest rates since 2022 have increased the cost of capital for businesses. Particularly, this has pressured stocks that have capital-intensive businesses with substantial debt on their balance sheets. As well, higher interest rates have made lower-risk, fixed-income investments more competitive against dividend stocks. For example, the best one-year Guaranteed Investment Certificates (GIC) offer interest rates of about 5.5%. Consequently, investors can now buy dividend stocks like the following examples at a bigger bargain and higher dividend yields for long-term investment.
Cheap utility stock to buy and hold
If you believe in ESG (environmental, social, and governance) investing, Brookfield Renewable Partners L.P. (TSX: BEP.UN) stock is a good consideration, as it has declined about 30% in the last 12 months. After the substantial market correction, the stock now offers a good cash distribution yield of close to 5.2%. You can also buy Brookfield Renewable Corporation at a premium of about 8% for a slightly smaller yield of about 4.8% to receive dividends instead of cash distributions that could be taxed differently based on the components of the distributions.
Brookfield Renewable is a clean energy company that has 32 gigawatts (GW) of operational capacity across North America, Europe, Asia Pacific, and South America in all major renewable technologies. Currently, it has a pipeline of close to 132 GW. Over half of the pipeline is in solar projects, 24% is in distributed generation, storage, and sustainable solutions, and 20% is in wind projects. It plans to put 16,000 megawatts into service over the next three years.
Management targets to grow its funds from operations per unit by about 10% per year, which will drive cash distribution growth of at least 5% per year. Analysts believe the undervalued stock is discounted by about 27%.
Bargain telecom stock
Similar to utilities, telecoms are also capital intensive. TELUS (TSX: T) stock has declined about 26% in the last 12 months. At $22.83 per share, analysts believe it trades at a discount of about 20%. The market correction pushes the dividend yield of the Canadian telecom stock to an attractive level of close to 6.4% — a yield that we haven’t seen from the stock in about 13 years!
Importantly, TELUS is devoted to growing its dividend, which it has done so for about 19 consecutive years. For your reference, its five- and 10-year dividend-growth rates are 6.6% and 8.3%, respectively. It has the capacity to continue dividend increases, particularly since its capital spending is expected to come down significantly, as the company finishes the buildout of its fixed network with fibre.
Canadian bank stock at a bargain
At $62.42 per share, Bank of Nova Scotia (TSX: BNS) trades at close to its 52-week low and at a bargain. It trades at about 8.4 times earnings. It can normally grow its adjusted earnings per share by about 5-6% per year. For example, in the past 10 fiscal years, it increased its adjusted earnings per share at almost 5.9% per year. At this quotation, it trades at a discount of about 26% from its long-term normal valuation.
Because of the relatively cheap valuation and the fact that Bank of Nova Scotia has increased its dividend over time, it currently offers a juicy dividend yield of close to 6.8%. For your reference, its five- and 10-year dividend-growth rates are 5.9% and 6.4%, respectively.
