Closing out the year by picking up shares of discounted dividend stocks seems like a smart idea, especially if you’ve got an extra sum (let’s say $3,000 or so) just sitting around in savings, collecting an interest rate that could become even lower in the coming months and quarters.
Despite the robust TSX Index rally, there are many dividend stocks that are at or around their 52-week lows, with dividend yields that are close to a high point. Indeed, when going shopping for dividends, you should ensure you understand the pressures and headwinds a given firm is feeling.
Additionally, evaluating the health of a dividend payment is vital, especially if we’re talking about outsized yields that look too good to be true. Oftentimes, a yield that’s too good to be true is poised to get slashed.
Of course, our job as dividend investors is to find the yields that are as safe as they are swollen. And in this piece, we’ll look at one attractive buying opportunity for new passive income investors looking to put some money to work before a Santa Claus rally has a chance to happen.
TD Bank
TD Bank (TSX:TD) is fresh off reporting some pretty brutal Q4 earnings results, which saw a miss on the bottom line alongside a suspension of its financial targets. Indeed, anti-money laundering woes weighed heavily on the quarter, causing the share price to suffer a more than 7% drop in a single day. The stock’s now down more than 30% from its peak, opening up a contrarian opportunity for dip-buyers hungry for yield and turnaround potential.
It seems like the great Canadian bank just cannot get a break these days. And while I do think there’s way too much pessimism priced in here, it seems like most Canadian income investors have had it with the name.
Why settle for a bank with a unique slate of problems when you can own a name that’s off to the races, at or approaching prior highs? Indeed, the relative underperformance of TD shares just seems to be getting worse. But that’s exactly why I’d prefer the name over its peers.
Eventually, the tides are going to turn, and value hunters will be coming back, enthused by the turnaround plan under its new incoming CEO. For now, though, it’s all about that ugly quarter that many can’t seem to put behind them. I have no idea if the past money-laundering headwinds are now behind the firm after a drop to new 52-week depths of $74 and change. Either way, I like the valuation and the dividend yield, which is yielding more than 5.1%.
The bottom line
The financial target suspension should have come as no surprise. And while there are few things investors hate more than uncertainty, I do think the bar has been lowered by so much that 2025 may just be the year that the stock has the means to gain at a far faster rate than the TSX Index. My takeaway? Don’t bet against TD just because it’s down and out. Its dividend is just way too impressive.
Though it won’t be easy to reverse course, I do think a new CEO can realistically act as a catalyst for change for the deeply undervalued bank. Further, a guidance reset may be the way to go as the new top boss looks to make his mark on a bank that has one of the most intriguing comeback narratives out there.
