Passive-income investors may be poised for capital gains over the coming years as rates retreat and the “yield bar” begins to lower with every Bank of Canada interest rate cut or a round of dovish commentary. Indeed, inflation has eaten away at our purchasing power over the past few years. And though slightly higher yields are appreciated, I still think passive-income investors with a long-term mindset will be able to really clock in the real returns (those are returns on an after-inflation basis) once central banks’ war against inflation begins to end.
Just because rate cuts are expected for 2024 doesn’t mean inflation is suddenly no longer an issue. As the Bank of Canada makes its next move, investors should be ready to stay cool in the face of any sudden shifts in market sentiment. Though 2024 could be a solid year of gains for all sorts of investors, volatility should be expected.
In this piece, we’ll check out two passive-income stocks that I view as potentially tremendous plays for 2024 and beyond.
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Sleep Country Canada Holdings
First, we have sleepy retailer Sleep Country Canada Holdings (TSX: ZZZ), which has pretty much spent the last year hibernating after a vicious 2022 selloff brought it below the $25 mark. Today, shares go for just shy of the mark, with a 3.82% dividend yield.
Undoubtedly, Sleep Country isn’t just a mattress play. Though mattresses are quite literally the biggest item the retailer sells, the firm also benefits from the sale of other sleep products, from sheets to pillows. Indeed, a premium pillow (think those lavender-scented ones with all sorts of premium foams) can go for upwards of $100!
At 9.9 times trailing price to earnings, ZZZ stock stands out as a deep-value bargain in my books. Will 2024 be the year when consumers become more willing to splurge on new sleep products and mattresses? I have no idea. Regardless, expectations are quite muted, and items like mattresses will explode in demand again once times get better. In the meantime, passive-income investors can collect that bountiful dividend.
Leon’s Furniture
Speaking of discretionary goods that could sell well in a strong economy, we have Leon’s Furniture (TSX: LNF), which is coming off an extremely volatile year. The stock spiked in the spring of 2023, only to come crashing down for the summer and fall, eventually bottoming out in November in the mid-teens.
Today, shares go for $19 and change and trade at 9.8 times trailing price to earnings. Like Sleep Country, Leon’s looks like a magnificent value play that will pay you handsome dividends (LNF stock yields 3.69%) to wait for the tides to turn. Indeed, furnishings are even more discretionary than mattresses, given a saggy mattress is more of an urgent replacement than one’s fancy sectional or dining room stools.
In any case, I’d argue the bust in LNF stock has already happened. And though things could get ugly in 2024 if a recession hits us hard, passive-income seekers have plenty of reason to keep rolling with the punches. At the end of the day, Leon’s has a dominant position in Canada’s furniture retail scene.
