The stock market isn’t having a very good August, with the TSX Index falling just over 0.5% on Thursday. As the Federal Reserve (the Fed) sheds more light on where it goes from here with rates and inflation, things could easily take a turn for the worst.
The August slump could set the stage for a market correction (that’s a drop of at least 10%). But investors need not fear, as a correction is a good thing, unless you need to get out of stocks over the near term.
Further, you don’t need to hit near-term performance targets to impress clients. As such, I’d argue that for most investors, especially long-term thinkers who aren’t just in markets to make a quick buck, is a really good thing!
Dividend stocks fall while their dividend yields rise
Now, that’s hard to believe, especially if you’ve already got plenty of skin in the game. It’s never easy to check over your TFSA (Tax-Free Savings Account), RRSP (Registered Retirement Savings Plan), or FHSA (First Home Savings Account), only to see it’s down big time after a brutal day for broader markets. Sure, it’s discouraging. And sure, it can be tough to justify doubling down or buying more shares of your favourite businesses. It’s easy to think you’re wrong and the market is right.
However, all you have to do is look back to last October, when things could not be more grim. That turned out to be a fantastic time to be a net buyer of stocks. Indeed, the artificial intelligence (AI) boom followed, and the rest is history. Though we can’t turn back time, I think investors should continue to look forward to lower prices and higher yields.
In this piece, we’ll look at dividend stocks that have seen their yields skyrocket amid their declines.
Enbridge
Enbridge (TSX: ENB) stock has been under pressure for well over a year now. The stock’s at a fresh two-year low at around $46 per share. As shares sagged, the dividend yield has risen accordingly. Now, at 7.62%, the yield is becoming impressive.
Though the dividend is becoming quite a hefty commitment, I just don’t see the company reducing its payout, even as a Canadian recession brings forth more pain. Enbridge is committed to its income-focused investors, and with that, I expect those who buy on weakness will do well and continue collecting the fat income payments.
Telus
Telus (TSX: T) is a well-run telecom that’s fallen on hard times. The stock now yields more than 6.3% at the time of writing. That’s close to the highest yield shares have had outside of crisis-level conditions. Though high rates (more to come?) are a prominent headwind, I believe the stock is oversold and a tad on the undervalued side.
Even if rates stay high, the dividend yield alone makes it a must-buy for income seekers. Of course, additional rate hikes could drag the stock even lower, but all considered, I find it hard to bet against the name here.
AT&T
If a 6.3% yield isn’t good enough for you, American telecom firm AT&T (NYSE: T) may be to your liking. The dividend yield sits at a whopping 7.8% right now. As it flirts with 8%, the dividend could be at risk of a big cut. For now, the firm is doing its best to cut costs where it can.
Hopefully, it can trim up to $2 billion in savings. With decent cash flows and lead cable headwinds, however, the dividend shouldn’t be viewed nearly as safe as the likes of a Canadian telecom yielding less than 7%.
