The October market is showing signs of revival. Despite the recovery, signs of a recession are also stemming. Insurance stocks that did well in 2008 before the global financial crisis are rising again. In this uncertainty, a good strategy is to adopt a balanced approach, buying into low-risk Dividend Aristocrats and the ones trading near their lows.
Five top dividend stocks to buy right now
After flat growth between mid-2022 and full 2023, the TSX Composite Index began a phase of the rally in June, reaching its all-time high in September.
Telus: 6.87% dividend yield
Telus (TSX:T) stock has surged 10% since June but is still trading near its pandemic low and 35% below its peak. Trading at a Relative Strength Index (RSI) of 50 shows that the stock’s 14-day price momentum has subdued investor enthusiasm. The reason for this is the high leverage on its balance sheet. Its capital spending on 5G infrastructure and high interest rates have inflated its leverage and dividend-payout ratio above its target range. This headwind will ease as interest rate cuts could reduce pressure on the cash flows. However, investors are worried about a slowdown in dividend growth.
You can use this uncertainty to lock in a 6.87% yield. Even if the company slows or pauses dividend growth, it would be for a year or two. Its mid- and long-term growth prospects are bright as the 5G opportunity unfolds. And if the regulatory uncertainty around giving network access to competitors clears and a decision is made in Telus’s favour, the stock could jump double digits.
There is more upside to the stock than downside, as investors have already priced in bearishness.
Retail REITs
Unlike Telus, CT REIT (TSX:CRT.UN) and SmartCentres REIT (TSX:SRU.UN) have recovered significantly since June and are 12% and 19% below their peak. Their RSI indicates strong buying momentum in the last 14 days. This rally comes on the back of a recovery in real estate. Both retail REITs enjoyed strong occupancy rates of above 98%. Despite this, their unit price fell as the fair market value of their property portfolio fell.
SmartCentres REIT witnessed a drop in its fundamentals as its cash flows decreased and the distribution payout ratio reached 100% because of rising interest rates and falling property prices. However, the situation has started to reverse. The key strength of the real estate investment trust (REIT) is its major tenant Walmart. Walmart has been restructuring, laying off corporate employees and closing underperforming stores. However, Walmart stores in Canada remain intact, posing no threat to SmartCentres’s occupancy rate.
The worst seems to be over for SmartCentres, and the REIT could gradually increase its funds from operations as interest expense reduces.
As for CT REIT, its unit price fell because of industry weakness. Otherwise, its fundamentals have been strong throughout 2022 and 2023. It earns more than 90% of its rent from parent Canadian Tire, and it has been developing new Canadian Tire stores. The business was usual for this REIT, with a distribution-payout ratio of 72.1%. Hence, the stock price was revised as the real estate market showed signs of recovery. It is a stock you can buy anytime to earn inflation-adjusted dividend income.
Enbridge‘s 6.6% dividend yield
Enbridge (TSX:ENB) is another evergreen stock you can buy anytime for inflation-adjusted dividend income. This range-bound stock is trading near its high of $55 as oil prices surged and the company acquired the North American gas utilities business. The company is well-positioned to continue giving dividends. The winter could drive demand for natural gas, sending Enbridge’s stock price higher. Moreover, the company is expected to announce a 3% dividend growth in December.
You can lock in a 6.6% dividend yield and reduce the volatility of your portfolio with Enbridge’s low-risk business model.
Adding to the portfolio diversification, you could buy Power Corporation of Canada, which is trading near its 52-week high. It can give you exposure to the insurance and wealth management sector. A recession could pull the stock down, as the insurance industry could take a significant hit. If the global economy averts a recession, the stock could continue to grow.
