Higher interest rates since 2022 have made it harder for Canadians to pay back debt and take out new loans. On the bright side, it has provided better buying opportunities and higher dividend yields in dividend stocks for long-term investing. Unlock value from these dividend deals and earn attractive income. You’ll also likely pocket price appreciation in the long run.
Canadian Tire
Canadian investors should put Canadian Tire (TSX:CTC.A) stock on their radar. I dare say every Canadian knows about the iconic brand Canadian Tire, which has a long history in the country. The retailer offers a broad range of products and services, such as automotive parts and services, sports products, apparel, home products, and gasoline. Over the years, it has also expanded its umbrella of brands, including but not limited to SportChek (a sports retailer), Mark’s (a casual clothing and workwear retailer), and Party City.
The Canadian retail stock doesn’t usually do well when the economy is stressed. Recently, the economy has been more stressed with higher interest rates. However, in a subsequent economic expansion, the stock could make a strong comeback.
The stock just made a new 52-week low last week. At $137.08 per share, it offers a decent dividend yield of 5%. The stock also trades at a discount of about 25%, according to the 12-month analyst consensus price target. Its trailing 12-month (TTM) payout ratio is approximately 44%.
Bank of Nova Scotia
When it comes to getting a safe, high dividend yield, you can’t miss Bank of Nova Scotia (TSX:BNS). As one of the Big Five Canadian bank stocks in Canada, Bank of Nova Scotia offers a secure dividend. The big Canadian banks are well regulated to support the stability of the financial system that can withstand challenging economic conditions. However, when the sentiment is negative potentially from credit drying up or a housing market downturn in a higher interest rate environment, the bank stocks won’t do well.
Their earnings are being reduced by higher loan-loss provisions in preparation for a higher level of bad debt. Bank of Nova Scotia has been one of the worst-performing big Canadian bank stocks. At $56.68 per share at writing, it offers a dividend yield of almost 7.5%.
Scotiabank’s TTM payout ratio is 62% of net income available to shareholders. Although that ratio is higher than the normal of roughly 50%, it is still sustainably covered by earnings. The bank has also paid dividends every year since 1833. So, investors should have peace of mind about the safety of its dividend income. Also, at the recent quotation, the stock trades at about eight times adjusted earnings — a discount of 28% from its long-term normal levels.
Bottom line
Between the two dividend stocks, investors can get an average dividend yield of about 6.25%. So, an investment of $10,000 would generate an annual income of roughly $625. Patient investors could also count on price appreciation when the economy improves. That said, two stocks aren’t sufficient for diversification. Build a diversified portfolio to reduce risk and plan for a more stable path for your wealth creation.
