Dividend stocks got a huge boost in Wednesday’s session, as the Federal Reserve shocked the world, signaling more dovishness. Indeed, the days of the hawkish central banks may finally be over, as the Federal Reserve in the U.S. (and the Bank of Canada on this side of the border) begin to release their foot ever so slightly from the gas.
As rates take a bit of a spill, the dividend stocks and other high-yield heavyweights could be in for a bit of a rally. As shares of such stocks rise, yields could begin to fall again. As such, investors seeking big passive income may wish to grab the dividend juggernauts while their yields are still a tad on the swollen side. Once rates are lower, perhaps at the end of 2024 and 2025, my guess is that the average yield will be a bit lower than where they stand currently.
Of course, the market may have already priced in three rate cuts for 2024 during Wednesday’s big pop. Regardless, I do think there’s more upside for the best-in-breed dividend plays. Let’s take a look at two that I think could shine in the new year!
Fortis
Fortis (TSX:FTS) stock is normally one of the plays you’d want to be a buyer of if you’re gloomy about the state of the economy and where it’s headed next. Though the economy faces turbulence in the new year, it’s hard not to be hopeful, with rate cuts on the horizon and robustness in parts of the economy. That said, I still think Fortis stock is a great pick-up when other investors reach for risk. Why? Fortis stock is cheap, and its dividend is rich.
At around $55 and change, the stock trades at a mere 17.9 times trailing price-to-earnings (P/E), quite low for such a high-quality utility with a wide moat surrounding its cash flow stream. Its dividend sits at 4.23%. Not as impressive, given where the risk-free rate stands. That said, as rates retreat and Fortis continues growing its dividend at a mid-single-digit pace, it’s hard not to be a net buyer of shares while they’re trailing most other stocks out there on the year.
Year to date, the stock’s flat. Moving ahead, I’d look for its smart investments to continue as planned, paving the way for steady appreciation over time. And if rates do drop significantly, I expect FTS stock to command a higher P/E multiple.
TC Energy
TC Energy (TSX:TRP) may very well be one of the least-loved dividend juggernauts on the entire TSX Index. It’s a wonderful company that I believe is overshadowed by some of its peers in the space, many of which may receive more coverage from talking heads.
The stock’s on a recovery run, now up nearly 16% from its 52-week lows. I think the run could carry into 2024, as the dividend yields look to retreat further with every huge upside move. At writing, the yield stands at 7.11%. Still quite hefty, even after the multi-month run-off lows.
My takeaway? I’d look carefully into the pipeline firm as it looks to beef up its smaller-scale cash-generative projects.
