Now is a great time to search for solid high-yielders as the Bank of Canada keeps the interest rate cuts coming. Indeed, the central bank cut rates again today to 4.25% while also commenting on inflation’s cooling. As rates continue trending lower, don’t expect the days of swollen dividend yields to last.
Of course, it will take another year or more to see rates down by a significant enough amount to jolt various firms. However, lower rates seem to be a gravitational pull on yields. Whether we’re talking about distribution yields on your favourite REITs (real estate investment trusts), utilities, or any other “safe” dividend payers, the time to punch your ticket to a dividend play may be today.
Of course, hopes of much lower rates alone aren’t enough to keep rallies of various income plays going strong. The firms themselves will need to manage through what could be a rather turbulent ride going into the new year.
Rate cuts and market volatility are the name of the game
Though a lack of landing for Canada’s economy is likely, turbulence in some of the tech stocks south of the border could derail the TSX Index market rally in its tracks. In any case, I believe the TSX Index is the place to be if you don’t want to be caught in the centre of the blast radius should the AI trade continue to unwind after many years of incredible gains.
Not to blast the stimulatory effect of artificial intelligence (AI) over the long run, but valuations, I believe, may be slightly on the high side, warranting some sort of correction. Such a correction seems to be unfolding right now, but as to whether the rest of the market (think the low-tech companies with less skin in the AI game) can move on remains the big question for investors to ponder.
In this piece, we’ll look at two “safe” high yielders that I think are likelier to be spared should AI stocks implode going into September and October.
Hydro One
Whenever you sense a storm is coming, Hydro One (TSX:H) is an easy buy, even at new highs. In a way, the regulated utility firm is like a bond proxy but with a dividend and cash flow stream that actually stands to grow over time.
The stock recently melted up by around 15% over the past three months. Indeed, lower rates and economic uncertainty are likely contributors to the hot run. Though I wish shares were cheaper (24.7 times trailing price to earnings today), the 2.73% dividend yield and low beta (0.34 at writing) make for a virtually unmatched portfolio stabilizer. The latest second-quarter numbers were solid, with profits much higher than last year.
However, some analysts have hit the pause button on the name over its extended valuation. Though slightly pricy, I believe that you’ve got to pay for top-of-the-line defensive exposure in this environment. With that in mind, H stock seems like a great buy at new highs. Perhaps buying incrementally over time makes the most sense, as the latest upside surge may have caught many a bit off guard this summer.
