An economy takes three years to recover from any major macro event. The year 2024 will likely mark a complete recovery as the lockdown is over, inflation has cooled, and interest rate easing will begin next year. The first half of 2024 could be challenging as we start off with a 5% interest rate. However, you could see a rally in dividend stocks on every interest rate cut. The market is hopeful for 2024 and could see a bull run in some sectors.
Dividend stocks to buy in 2024
The TSX is famous for its dividend aristocrats, especially in the energy and telecom segments. These stocks could rally to their normal trading price after a 2023 dip.
Pipeline stocks
Pipeline stocks like Enbridge (TSX:ENB) and TC Energy (TSX:TRP) fell 10% as the energy industry seriously started transitioning to greener alternatives. They have slowed their dividend growth and are revising their business models to sustain a modest 3% dividend growth.
Enbridge is acquiring three U.S. gas utilities to earn stable cash flows and reduce its dependence on oil, which still makes up for more than 50% of its revenue. TC Energy is spinning off its oil pipeline business into a separate entity. Both these transactions will materialize in 2024, setting the stage for a new era of liquified natural gas (LNG) as the primary energy source.
The first half could remain tepid for the two stocks, but the second half could see a recovery as falling interest rates reduce their interest expense. Now is the time to lock in a more than 7% dividend yield. Such a high yield is difficult to get in a low-risk business. I do not expect these two stocks to return to their 7-8% dividend growth anytime soon. Remember that oil is a decelerating market, and the infrastructure to export LNG to Europe is still under construction.
But you can find high dividend growth in another sector.
Telecom stocks
Telecom stocks have been on a downtrend as high-interest expenses continued to slim their bottom line. But this is also the time to lock in higher yields. The telecom sector is going through a generational shift to the 5G era, which will facilitate artificial intelligence at the edge. 5G could set the stage for the proliferation of the Internet of Things (IoT), which has seen slow adoption till now. The higher dividend growth rate you saw in pipeline stocks a decade ago could shift to telecom stocks, making them the passive income stock to buy and hold till retirement.
Among telecom stocks, BCE (TSX:BCE) and Telus Corporation (TSX:T) are value picks as they have slumped 30% since the interest rate hikes began in April 2022. As the rate hike trend reverses in 2024, so could the stock price direction. I expect a 30-40% jump in the stock price as interest rates ease and the effect of the 5G rollout materializes.
The two stocks have the 5G secular trend behind them and seen an uptick in wireless subscriptions. However, their accelerated capital spending in 5G infrastructure increased their debt. As a result, rising interest expenses on this debt reduced their profits. As this expense falls, their profits could increase and reflect in their stock prices.
Now is a good time to lock in a 6-7% dividend yield while these stocks still trade at their low.
Investors take away
2024 could see a trend reversal. It is the time to buy the dip in dividend aristocrats and grab the opportunity to lock in higher yields and capital growth. This two-in-one benefit in capital appreciation and dividend yield in low-risk stocks can boost your passive income portfolio.
