Here are three dividend stocks that offer attractive yields and nice total returns potential. Some ideas are riskier (with businesses and stocks that are more unpredictable) than others, though.
Scotia stock offers an attractive 6.4% dividend yield
Bank of Nova Scotia (TSX: BNS) stock is a turnaround story. It has been the worst-performing bank of the big Canadian bank stocks over the last decade because of its exposure to higher-risk developing markets that occasionally don’t work out and generally have higher levels of bad loans, particularly in a higher interest rate environment. Investors can view its larger dividend yield as higher compensation for holding the stock.
A reversion to the mean over the next five years could drive double-digit returns in the value stock. In the meantime, at $65.91 per share at writing, Scotia stock trades at about 10 times earnings and offers a 6.4% dividend yield.
BNS Dividend Yield data by YCharts
If you’re an income-focused investor, it’s not a bad idea to park some of your money in the bank stock. It produces 28% more income than a traditional one-year Guaranteed Investment Certificate (GIC). A reversion to the mean could drive total returns of more or less 14% per year over the next five years.
Fortis stock yields almost 4.3%
Fortis (TSX: FTS) stock currently trades at a discount to its long-term normal valuation because of higher interest rates and a higher cost of capital. It commands a premium long-term price-to-earnings ratio because of the predictability of its business. Despite higher rates, it’s still able to deliver steady earnings growth. Along with a sustainable payout ratio, it can continue increasing its dividend, and this is what long-term investors expect from the stock.
At $55.49 per share at writing, the utility stock offers a dividend yield of 4.25%. If interest rates come down over the next five years, it should push the stock back to its long-term normal valuation for total returns of approximately 10% per year. That would be satisfying returns from a low-risk, blue-chip stock.
Magna International yields 4%
The last dividend stock idea is for long-term investors with a high risk tolerance.
Magna International (TSX: MG) is an auto parts company that is in the consumer cyclical sector. Indeed, its profits and cash flows have gone on a roller-coaster ride through the economic cycle.
It’s a rarity to find the consumer discretionary stock offering a 4% dividend yield, which is at the high end of its historical yield range. It means the stock is on sale. However, interested investors should note that it doesn’t mean it can’t get cheaper.
Under extreme operating conditions, the stock had experienced extreme selloffs. For example, over the last two decades, there were two occasions (the global financial crisis and the 2020 pandemic) in which it offered a dividend yield of about 5%. It is anyone’s guess whether, this time around, it would hit that 5% yield or not. The potential of this happening means there could be another downside of roughly 20% in the cyclical stock.
That said, from the current levels of $64.63 per share, a reversion to the mean coupled with an economic expansion could drive total returns of over 20% per year over the next five years. Consider this as the best-case scenario.
