There are many dividend stocks across the board that have dividend yields on the higher end of their historical ranges. A major reason dividend yields are, on average, slightly swollen is due to higher interest rates and concerns about an economic slowdown. Undoubtedly, macro headwinds and recession fears have taken a toll on broader markets in recent years.
With the exception of the so-called Magnificent Seven, stocks haven’t really had as great a year as you’d expect. In many ways, the equal-weighed S&P 500 looks more like the TSX Index, which has been in a funk since mid-2022.
Only time will tell where the top dividend stocks go from here, but if you’re in the belief that rates could be headed lower from here, I think dividend stocks are worth snagging while they’re still out of favour with most other investors.
In this piece, we’ll consider two dividend stocks that are looking cheap and ready for relief going into the new year.
You could probably do well over the long run by picking up any Big Six Canadian bank stock after yet another year of painful downside moves.
Scotiabank (TSX:BNS) remains one of my favourite deep-value bets of the pack, especially after its brutal Tuesday tumble on the back of some sub-par quarterly earnings. Loan-loss reserves and costs increased, weighing heavily on a quarter that saw profits come in on the lower end.
Undoubtedly, things seem to be going from bad to worse for the $69.4 billion domestic and international banking behemoth. While I have no idea if the latest weak earnings represent the lows, I think the more than 7% dividend yield is worth grabbing. It’s one of the safest yields north of 7%, in my humble opinion. Once rates retreat and the economy warms again, don’t expect Scotiabank’s yield to stay elevated for very long.
Laurentian Bank (TSX:LB) is another troubled bank that’s been sinking lower in recent sessions. On Tuesday, shares slipped 0.6%, bringing it down a grand total of 58% from highs hit in late 2017. Undoubtedly, Laurentian Bank seems to be losing deposits at a concerning rate. Demand deposits fell 3.3% in the first two months of the fourth quarter. Indeed, the Big Six may be getting the better of smaller, more regionally focused banks like Lauranteian.
As management experiences changes, though, I’d look for the bank to make drastic moves to turn the tide. For now, LB stock is a deep value play that’s not for the faint of heart, given its propensity for vicious swings. At writing, the dividend yield is at 7.36% — just a bit higher than that of Scotiabank.
The Foolish bottom line
Between shares of BNS and LB, I’d have to stick with the former. Scotiabank’s international focus won’t be a soft spot for the firm forever. As the economy normalizes, I see a pathway for BNS to recover. As for LB, things are less clear.
If the bank can stop its deposit bleed, I do see substantial upside over the near term. As always, though, such deep-value plays accompany a greater magnitude of risk. Fortunately, I think a great deal of such risk is already baked in.