Though U.S. stocks are just a good day away from breaking into a new all-time high (with the TSX Index not too far away from its own highs, down just shy of 4%), it certainly does seem like some sort of pullback or breather is in order. Indeed, we’ve likely been conditioned to doubt all-time highs, given we just rose out of a bear market over the past year.
Given we’re likely in the early stages of a new bull market, we may grow to become conditioned to expect higher highs on the back of better corporate earnings. Also, whenever you’ve got a productivity enhancer in the form of predictive and generative artificial intelligence (AI), it’s hard not to be enthused by the longer-term prospects of economic growth.
If AI continues innovating at this pace, ARK Invest’s Cathie Wood may be right in that it’s deflation, not inflation, that may become the main concern on the minds of investors. Indeed, a bit of deflation (that’s negative inflation, where prices go down) seems welcomed at this point after enduring all the rampant price increases over the past few years.
However, deflationary periods can be pretty tricky to climb out of. Though lower prices are a good thing, workplace automation could lower disposable income and demand for certain types of goods.
That would have a mixed impact on the economy. In any case, I don’t think we need to worry about AI automation and deflation quite yet, as such factors still seem many years away. In any case, such factors could cause central banks to bring rates back to the floor, potentially sparking a resumption of the great tech rally.
For now, I wouldn’t shy away from stocks that have been doing well of late, especially if valuations are decent and dividend yields are rich. This piece will check out two dividend stocks that may be worth checking out on any dips between now and year’s end.
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Brookfield Asset Management
Brookfield Asset Management (TSX:BAM) is one of those dividend stocks that can do well in most seasons, with a juicy 3.78% dividend yield and newfound momentum that’s taken shares to new highs, just shy of $56 per share.
Undoubtedly, the asset manager stands to benefit from rising demand for real “alternative” assets over time. Recently, the company hiked its dividend by a generous amount (quarterly dividend of US$0.38, up a whopping 19%) following the release of some robust numbers. Fourth-quarter profit came in at a nice US$95 million, good enough to convince management to increase its already-generous dividend payout.
Moving forward, I expect BAM stock to continue being a stable rock for investors as it looks to do its best to keep driving cash flows. Early signs suggest BAM is one of the dividend growth knights in the making. And for that reason, I’d hang onto the name even as it surges to greater heights.
Magna International
Magna International (TSX:MG) is an auto-part maker that’s been going flat since tanking back in late 2021 and early 2022. Amid the rough patch in the road, Magna has been doing its best to position itself for an economic recovery. The stock also looks cheap after crash-landing to the bottom around a year ago.
At 13.05 times trailing price to earnings, MG stock looks like deep value hiding in plain sight. With the firm recently announcing a share-buyback program, it seems like management is more than willing to eat its own cooking. All considered, Magna is a terrific, well-run cyclical with a strong dividend (3.5% yield) and the means to rally on the back of secular tailwinds that may take the driver’s seat within the next few years.
