TFSA investors should look to nibble at some of the high-yield dividend heavyweights while they’re still on wobbly legs. Indeed, high rates have been dominating the headlines over the past few years. And they’ve been quite a thorn in the side of certain capital-intensive firms, especially those that pay out a big chunk of their cash flows in the form of a generous dividend.
As investors look for the Bank of Canada to cut back on rates, the headwinds could fade. And the oversold dividend (or distribution) players could kick off what could be the start of a rebound. Now, a rebound could take a few years. But if you’re willing to roll up your sleeves and go against the grain, I do think there are various dividend plays that could improve your chances of beating the TSX Index over a long-term timespan.
Of course, when everybody expects a soft landing and rates to fall, markets could be set up for negative surprises. So, don’t place too big of a bet all in one go. Instead, maybe it makes sense to put in a quarter position now and be a buyer of more at a later date. Either way, TFSA investors shouldn’t get too bullish or bearish. They should be mildly bullish, aware of the risks, adopt a contrarian mindset, and always have a plan B that they’re ready to execute on!
Without further ado, here are two attractively valued dividend heavyweights I’m tempted to pick up before 2023 comes to a close.
First, we have a REIT (Real Estate Investment Trust) that’s been battered and misunderstood by most. On the surface, it’s a retail REIT. That alone probably lost the interest of a majority of investors. Not only are REITs ugly right now, but retail REITs seem downright scary in an age of digital retail and a pressured consumer. But what makes SmartCentres REIT (TSX:SRU.UN) a great value play?
It’s not like any retail REIT; it’s actually quite a diversified REIT, with growing skin in the residential REIT scene. Additionally, SmartCentres houses some of the best brick-and-mortar retailers on the planet. Walmart (NYSE:WMT) anchors most SmartCentres locations.
Amid inflation, Walmart has been a smart place (forgive the pun) to shop to save a few bucks on the monthly budget. Apart from Walmart, the tenant portfolio is pretty rock-solid, with defensive and well-run discretionary retailers.
SmartCentres REIT gets a bad rap, and for no good reason. The yield may be high at over 8%. But it’s still well-covered. And pending a steep vacancy rate surge (highly unlikely even with a recession looming), the distribution looks to be on stable footing. All considered, SmartCentres looks like one of the smartest ways to chase yield while we enter the latter innings of this high-rate environment. For now, the FFO (funds from operations) payout ratio is at 96.1%. That’s on the high side, but I’d look for the figure to move much lower from here as conditions normalize.
Scotiabank (TSX:BNS) is an internationally diversified big bank that’s really been in a funk. The stock trades at a stupidly cheap 9.4 times trailing price-to-earnings (P/E) at the time of writing, with a 7.05% dividend yield. Again, this payout looks incredibly safe, even as investors fear the worst could be in store for 2024.
At the end of the day, the $72.6 billion bank is well-capitalized and could flex its international growth muscles once the world economy gets back to a better place. As a relative underdog, Scotiabank stands out as one of the dividend heavyweights that may also have considerable medium-term upside potential in a bull-case scenario for markets.