With the U.S. Federal Reserve now following in the footsteps of the Bank of Canada regarding rate cuts, some of the income-savvy investors may view the rising-rate trajectory as some sort of last call to pick up higher-yielding dividend stocks before the low-rate tailwind has a chance to jolt their share prices, and, with that, compress their yields by a slight amount.
Undoubtedly, a number of TSX dividend stocks have been underperforming, especially relative to some of the “growthier” corners of the market.
Despite the lagging track record, I think it’s time for long-term investors to punch their ticket to high-yielders sooner rather than later. And though there could be a bit of a pullback between now and year’s end that could grant dip-buyers an opportunity to get just a bit more yield at a slightly lower price, I’d argue that such a dip may not be guaranteed, especially considering the Federal Reserve’s huge 50-basis-point (bps) rate cut, which effectively acts as a double cut in one go.
More rate cuts could be coming: Dividend stocks may yield far less in 2025
Here in Canada, I think it’d be unrealistic to expect any such 50-bps cuts at once (in many ways, it’s like a double dose of medicine to combat inflationary pressures), especially given that the Bank of Canada cut rates far sooner than the U.S. Fed. In any case, it’s hard to imagine that inflation will return in full force, causing central banks to hit the pause button on rate cuts or, worse, opening the door to potential interest rate increases in the near future.
Either way, I think the biggest risk for passive-income investors is declining yields and climbing valuations on the broad range of dividend plays. In this piece, we’ll highlight two solid dividend stocks that may be great bets before September ends.
Rogers Communications
Rogers Communications (TSX:RCI.B) isn’t exactly the type of affordable telecom stock you’d look to consider if you’re on the hunt for yield. At writing, shares currently yield just 3.65%, far less than its major peers, some of which currently yield more than double.
So, why settle for a lower yield with the $29.3 billion telecom? The firm seems to have more financial flexibility, which could entail more generous dividend growth over the next three to five years. Indeed, the acquisition of Shaw Communications puts that much more power into the telecom’s hands.
Looking ahead, I think Rogers can unlock more value as Canadian consumers demand better bang for their buck. Indeed, inflation has been gruelling, and though it’s winding down, I expect the appetite for good deals to stay hot.
While Shaw joining forces with Rogers has been viewed as a tremendous negative to many, given how much industry power it concentrates in the hands of one firm, I see Rogers passing on savings to consumers as it looks to trim away inefficiencies while enhancing service where possible.
Bottom line
With shares down more than 25% from 2022 highs, I’d say now is a great buying opportunity for investors seeking a decent dividend yield along with above-average dividend-growth prospects.
Though Rogers hasn’t been a dividend growth stud in recent years, I think it has the means to grow its payout at a mid- to high single-digit rate annually. Should Canada avoid a hard landing, perhaps RCI.B stock could prove one of the best dividend bargains in the market right now.
