Passive-income investors shouldn’t be rattled, as the stormy September continues to weigh heavily on stocks. Undoubtedly, rate concerns are back in the headlines, and many upbeat investors are now starting to look a tad worried, as broader markets look to reverse course. Inflation has come down quite a bit from its highs. However, the latest uptick in inflation to 4% could lead to a “higher-for-longer” environment. Perhaps a few more rate hikes may be needed, as inflation refuses to fall below the 3% mark.
In any case, investors must be prepared to cope with this high-rate world, as rate-pause hopes get shot down with every hotter-than-expected inflation report. Undoubtedly, high rates are a sore spot for many, but high inflation is a greater pain that hurts a lot more people. With that, investors should stay the course and continue to buy stocks that they deem are too cheap to ignore.
Income investors: Don’t let rate fears have you stuck to the sidelines!
In this piece, we’ll look at two high-yielding stocks that have seen their yields swell amid their declines. As rates keep rising, the selling pressure could mount. But don’t think that any sort of dividend reduction will be in the cards. At the end of the day, this wave of surging rates will end. So, if you’re concentrated on investing for the next 15-20 years, don’t let the rate-related worries of others affect your investment decisions!
Without further ado, consider shares of CIBC (TSX:CM) and SmartCentres REIT (TSX:SRU.UN), two high-yielding heavyweights that I think are worth buying now and on any weakness over the coming weeks.
CIBC
It’s hard to believe that CIBC stock has lost a third of its value from its peak hit around a year and a half ago. The stock now goes for $55 and change per share, or about 11.28 times trailing price to earnings. Undoubtedly, macro headwinds could bring forth a wave of provisions. With major skin in the Canadian housing game, CIBC could face pressures as higher rates begin to weigh more heavily on the domestic housing market.
There’s no question that the big banks could face steeper credit risks. But at the end of the day, don’t expect high rates and a recession to cause any bank (CIBC included) to fall to its knees. CIBC remains well capitalized at this juncture, and one has to think a lot of the headwinds (and weak quarters) are already factored in. The stock did shed 33% already! I view the decline as just a bit overdone.
It’s unclear when things will turn, but I’d not be afraid to be a buyer of a battered bank like CIBC here.
SmartCentres REIT
SmartCentres REIT sports a wonderful 7.7% dividend yield. And it’s not at risk of a big cut, even if a recession is coming to Canada. Now, retail real estate investment trusts (REITs) may get a bad rap these days. However, I think SmartCentres is far better than its peers, thanks to its solid mix of tenants, many of which can withstand a mild recession.
With strong funds from operations (FFOs) and a robust property pipeline that blends residential with retail, I’d not be afraid to buy shares at around $24. At writing, shares are off more than 27% from their 2022 highs and around 37% from their all-time highs.
