It’s been a slow start for the TSX Index this year, with the S&P/TSX Composite Index sagging around 3% year to date. Indeed, there is not much relief for the Canadian stock markets after a dreadful 2022. Only time will tell when the TSX is ready to march higher again. Regardless, I view the index as full of compelling bargains that Canadian investors may wish to keep watch of going into year’s end.
Sure, the broader basket of Canadian stocks may be less timely than the battered tech names of the Nasdaq 100. However, if you consider yourself a value investor, it’s hard not to be enticed by the plays to be had on this side of the border. With the weak loonie relative to the U.S. dollar, I believe there’s a strong case for sticking with the TSX this time of year, whether or not the TSX is ready to make up for lost time should a market relief rally begin to kick in.
At this juncture, dividend stocks look like the smart way to go. With such names, you’ll be able to collect a nice payout while you wait for this market to move past a period of turbulence. If you’re going to be put through the choppy waters, you may as well get paid handsomely to do so!
Balancing risk and reward
After so much turbulence, yields across the board are looking enticing, even compared to the risk-free rate! Of course, stocks will always accompany some magnitude of risk. But as an investor, it’s your job to manage such risks effectively to maximize your overall risk/reward scenario. Indeed, when times are good, many hungry investors tend to try to maximize their reward potential. And when the tides turn, suddenly, everyone focuses more on limiting risk, with less consideration for capital gains potential.
The key to smart investing is to find the right balance. Score a good potential return for a magnitude of risk that you can stomach. Here’s one dividend stock that stands out as having a solid risk/reward profile, with the ability to lead the broader indices higher if we are, in fact, closer to the bottom of Mr. Market’s hangover!
Bank of Montreal
Canadian banks are so unloved these days, and Bank of Montreal (TSX:BMO) is certainly no exception, as Canada risks falling into a recession. At $104 and change, BMO stock is looking dirt cheap at 10.3 times trailing price to earnings (P/E). With a meaningful presence in Canada and the U.S. market, investors looking to play both sides of the border can bank on the firm, especially as it sags to multi-year lows alongside its banking peer group.
The stock has shed over 31% of its value from its 2022 peak. It’s been a violent fall, but all the while, the dividend yield has surged to an astounding 5.71%. I think investors should buy BMO for the dividend and turnaround potential.
Provisions and a weakening economy could point to more rough quarters to come. But beyond that, I think BMO stock is poised to outperform. Over the next three to four years, I’d not bet against the $74.9 billion bank.
Can BMO stock power the TSX to outperformance in 2024?
It’s impossible to tell. As BMO turns a corner, so will many of its banking peers. In that regard, I’d not be surprised if banks help propel the TSX higher in the next year.
The banks are just so battered right now. And BMO stock stands out as one of the more intriguing plays of the group. Either way, I’m bullish about the next three years for the firm while it sags to lows not seen since early 2021.
