High-yielders may deserve to be overlooked when rates only seem to climb higher by the quarter. With inflation starting to cool, though, rates are bound to fall. And though markets are pricing in a handful of rate cuts for the new year, I’d argue that the long-term trajectory for rates and inflation remains as promising as ever.
So, while markets may be too enthused about the cuts to come over the near term, I believe the next five years could prove prosperous for investors looking to bet on the dividend stocks that currently sport yields slightly on the higher side.
In this piece, we’ll look at one high-yielder that I don’t think will command as juicy of a yield six years from now, especially if rates settle. The rise of artificial intelligence (AI) paves the way for potential deflation (or negative inflation).
The AI boom is a big deal, and it’s just getting started. As productivity gains kick into high gear, I think AI could be the force that takes absurdly high inflation to below the 2% target, a level of inflation that many would consider to be “ideal.”
Inflation and rates could begin to really cool in the coming year!
Now, inflation isn’t a bad thing per se, as long as it’s under control and at or below the 2% mark. However, when you have negative inflation, it can be tough to break out of a potential deflationary spiral.
Falling prices could entail lower demand for goods and, thus, less supply to meet the lower demand. It’s a cycle that can be tough to break, and the implications for consumers are less clear as people become less willing to spend as employment becomes hit with harder times.
Indeed, the AI impact on labour will be a major focus over the next six years. In any case, I think that in 2023, we’ll all be looking back on 2023 and 2024, as opportunities for long-term income investors to grab the higher yields on quality stocks while they last.
BCE stock: A nearly 7% yield that may not last long
BCE (TSX:BCE) stock has always been a great source of steady income, but in recent years, the yield has really swelled to historic levels. I think the days of nearly 7% yields could be drawing to a close as rates begin to descend over the next several years.
Undoubtedly, lower rates are also a tailwind for BCE, which won’t have as much interest weighing down the firm’s ability to spend on wireless projects. As rates fall off, I expect BCE stock to move higher as its yield begins to fall, perhaps back to a normalized level of 5-6%.
BCE faces secular headwinds with its Bell Media division, but one has to think the matter has already been priced in after many quarters of relentless selling from investors.
The Foolish bottom line for passive-income investors
BCE stock doesn’t seem timely right here. It’s been a lacklustre investment since peaking in early 2022. That said, I expect the firm’s fortunes to turn before 2030 hits. If you seek income and gains over a six-year span, BCE stands out, in my opinion.