Retired Canadians with an extra $5,000 or so to invest may not wish to wait around for volatility to settle before putting new money to work. Indeed, it’s times like these, when markets could be up or down by well north of 1% on any given day, that some of the best bargains are to be had.
Interest rates have been chipped away at by the Bank of Canada. Up ahead, there will likely be more such cuts coming as some indebted Canadians brace for a bit of gradual relief.
Indeed, the weight of higher borrowing costs won’t be lifted off our shoulders all at once. Rather, a little bit of weight will be lifted gradually over time, one rate cut at a time. And with every bit of weight removed, the dividend and distribution yields on some of the market’s best income stocks stand to contract as the hunt for ultra-high yields gets that much harder. As rates drop, yields on risk-free assets and bonds stand to contract.
Further, the rich yields on dividend stocks could also be driven down as various investors pile back into the best-in-breed passive income stocks and REITs (real estate investment trusts). In this piece, we’ll look at one clever income play that I’d look to pursue over the next few months with an extra $5,000 sum or less.
TD Bank: Like passive income? It’s time to buy the bounce
Don’t look now, but battered bank TD Bank (TSX:TD) is starting to recover, with shares now up around 11% in the past three months. Indeed, the bounce-back should come as no surprise as the bank looks to move past a few bad quarters and the aftermath of the money-laundering issues. More recently, TD Bank got slapped with a US$28 million fine by U.S. regulators over sharing inaccurate reports. Indeed, it’s a rather small fine in the grander scheme of things.
Either way, the move suggests that a big change is needed at TD Bank. And as the bank hunts down its next chief executive officer, I think the franchise can rise again. For now, it’s unclear who the big bank’s next successor will be. Either way, I think that TD stock could surge once a timeline for a new top boss is announced, whether that’s next year or sometime further down the line.
In short, TD Bank has run into some nasty potholes in recent years. However, investing is more about the road ahead than the one behind. As TD Bank hits the high road ahead, I think contrarians will get a great deal as they look to lock in the 4.9% dividend yield while it’s still well above historical averages.
So, if you seek rock-solid banking assets on both sides of the Canada-U.S. border and want a discount as others fret over past transitory issues, perhaps now’s the time to buy.
Bottom line for income investors
The recent newfound momentum spells good things for the stock going into year’s end. The bank will need to put together a better-than-expected number, however, if shares are to follow in the footsteps of its better-performing Big Six rivals, some of which hit new highs earlier this year.
