As the economic environment weakens while interest rates are rapidly rising, almost every stock in the market will be impacted negatively. Even dividend stocks, which are typically some of the best to buy during volatile market environments, have been heavily affected by rising interest rates.
Rising interest rates hurt the value of all stocks, but especially dividend stocks, because they cause bond yields to rise. And since bonds are lower-risk investments than stocks, investors would rather buy these with their higher yields than dividend stocks. Consequently, stock prices fall and dividend yields rise.
In addition, higher interest rates also make it more expensive for companies to service their debt, which likely impacts their profit margins.
So it’s not surprising to see even some of the best and most resilient dividend stocks lose value over the last year. It’s also an excellent opportunity for investors to buy some of the best dividend stocks now while they’re cheap and offer higher dividend yields than they did just a few years ago.
So if you’re looking to take advantage of the market environment and several high-quality dividend stocks trading cheaply, here are two of the smartest dividend stocks to buy right now.
One of the smartest dividend stocks to buy and hold forever
There are several high-quality dividend stocks for investors to consider now, especially on the Canadian dividend aristocrats list. However, one of the very best, which has an unbelievable dividend growth streak of 49 years, is Fortis (TSX: FTS), the massive $26 billion utility stock.
Because Fortis is a utility stock, one of the most resilient businesses there is, it’s not a very volatile stock. So, it’s one that you can buy and hold long term, with the confidence it can protect your capital.
Just because it’s not very volatile, though, doesn’t mean it can’t experience temporary periods when the stock price is being impacted. As of Friday’s closing price, Fortis was down 10% over the last six months giving buyers the opportunity to gain exposure or increase their position.
Fortis is well-known as one of the most reliable dividend stocks in Canada. And in the last 5, 10 and 15 years, it has averaged a yield of 3.8%.
Today, however, after the headwinds the market has faced recently and sell-off Fortis stock has experienced, its yield has increased to more than 4.35%. The price decline gives investors an excellent opportunity to lock in a higher yield and buy the stock undervalued.
In fact, today FTS trades at a forward price-to-earnings (P/E) ratio of 17 times, whereas its 5- and 10-year average P/E ratios are 19.3 and 18.8 times, respectively.
It’s also worth noting that even in this uncertain economic environment, while many stocks across numerous industries continue to struggle, Fortis’ normalized earnings per share (EPS) are still expected to increase by roughly 9% this year. This just goes to show how resilient Fortis is, and why it’s one of the most popular dividend stocks to buy in Canada.
An ideal passive income generator
Another high-quality dividend stock to buy now – and one that offers an even higher dividend yield than Fortis – is CT REIT (TSX: CRT.UN), the retail REIT largely owned by Canadian Tire.
Retail REITs are generally seen as some of the highest-risk REITs for a couple of reasons. First off, the retail sector is nowhere near as defensive as an industry such as residential. However, in addition, the rise of the e-commerce sector continues to disrupt retail, leading to many store closures and increasing the risk for retail REITs.
With CT REIT, though, not only is Canadian Tire its largest owner, but it’s also its largest tenant accounting for nearly 90% of its rent.
Therefore, despite the performance of its stock price over the last six months, with CT REIT losing 16% of its value and now trading more than 20% off its 52-week high, it’s continuing to grow its revenue. It’s also worth noting that CT REIT has increased its distribution for 10 straight years now.
So while it trades cheaply and offers an attractive yield of more than 6.6%, it’s certainly one of the smartest dividend stocks to buy now.
