The TSX Index looks pretty unstoppable as we enter the fourth and final quarter of 2024. Undoubtedly, with the U.S. election ahead and a potential Santa Claus rally setup going into year’s end, new investors may be inclined to pick up a few shares of dividend stocks while they’re still cheap and their yields are on the high end.
Undoubtedly, rates are coming down, and they could come down quite quickly alongside the broader basket of dividend stock yields. In any case, I’d argue that passive-income investors may be in a bit of a sweet spot right now. Many underperforming high-yielders are starting to pick up speed, with shares moving higher after many years of excessive volatility.
Despite recent momentum in some of the dividend payers, valuations are still very much reasonable. In fact, some names may actually be severely undervalued relative to the total returns (that’s dividends plus capital gains) that they can post for investors.
In this piece, we’ll check out two blazing-hot stocks with solid dividends and discounted multiples. Personally, I think the last quarter could see a sensational finish for the following firms.
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CIBC
CIBC (TSX: CM) is a Canadian bank that’s historically traded at a considerable discount to its peer group. However, after faring incredibly well amid the pandemic years and the inflationary surge, I think there’s a pretty strong case that CIBC deserves not just an in-line multiple with the big Canadian banks but perhaps a premium one. Indeed, the main cause of concern for CIBC is its exposure to the domestic housing market.
There’s no question that housing is a tad on the frothy side. However, as rates come down and the Canadian economy looks to pick up, I view CIBC stock as a more attractive pick at today’s levels. The stock trades at a modest 12.0 times trailing price to earnings (P/E) to go with a 4.35% dividend yield. With the stock up over 30% year to date, income investors may wish to view the name as a “last call” of sorts to buy before the yield has a chance to return to and below the 4% mark.
Hydro One
Hydro One (TSX: H) is one of the steadiest utility companies. You may know it best for its monopolistic position over Ontario’s transmission lines. Not having too many competitors is a massive plus for investors seeking stable, growing passive income over time.
At writing, shares of H yield a mere 2.68%. That’s on the low end, but given the rate cuts that are coming in fast, I’d argue that it’s still a worthy dividend to reach for if you’re willing to forego a bit of yield to take on much less market risk. With a 0.34 beta, which is incredibly low, H stock is less likely to correct when the TSX Index eventually gets slammed for whatever reason.
Indeed, it’s this low correlation and Hydro One’s predictable record of dividend and cash flow growth that make it an ideal bond proxy for income investors looking to play it safe for the rest of the year and going into 2025.
