The hunt for yield may be getting a bit harder after the sudden spike in the TSX Index. While select dividend stocks may be up double-digit percentage points in the past few weeks, there is still a wide range of value names that may be able to help your Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) “average up” its overall yield. Of course, chasing yield is never a good idea unless you’re prepared for the risk of a dividend reduction and an ensuing dip in the share price in response.
That said, not every yield north of 4% is to be avoided like the plague. In fact, some hard-hit dividend stocks may offer value, yield, and medium- to long-term upside potential. In this piece, we’ll check out three names that I think check all the boxes as great dividend bets for May.
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BCE
First up, we have shares of badly bruised telecom firm BCE (TSX: BCE), which recently slashed its dividend by more than 50%. I’m sure the cut was more of a relief than anything else, at least that’s what I took away from the brief post-dividend-cut surge in the stock.
While the new dividend (now yielding just under 6%) is more than safe, I can’t say the same about the stock as it struggles to stay above the $30-per-share mark. In a prior piece, I encouraged investors to be careful when buying the name (in other words, don’t time a bottom!), given there’s still so much negative momentum behind shares.
That said, I view the name as worth the risk for those still enticed by the lower dividend. In any case, BCE stock is my least favourite dividend stock of the trio covered in this piece. For those looking for good yields and dividend growth with less pain, the following two stocks may offer a better risk/reward scenario.
Telus
Of the big telecom stocks, Telus (TSX: T) stock has to be my preferred choice. Sure, it’s had a hard time dealing with industry headwinds, just like BCE. Today, the stock’s still off 36% from its all-time high. However, with a lack of media business and less damage done to the stock from peak to trough, I’d be more inclined to go with Telus.
Also, it now commands a higher dividend yield than BCE at 7.6%! Additionally, this payout continues to grow at a respectable rate despite pressures facing the business. With subscriber numbers rising again, I’d go with T stock for yield lovers who want a bit less pain than BCE.
Cascades
Finally, we have a promising mid-cap with a 5.52% dividend yield. Cascades (TSX: CAS) isn’t exactly a well-known dividend play in the investment community. But it is one that’s worth consideration for those looking for deeper value and greater diversification.
For those unfamiliar with the business, it creates a wide range of paper products (think tissue products and packaging) while making good use of recycled fibres. Indeed, pulp prices have been quite volatile in recent years, but the beta remains quite low at 0.66, making it a great name to hold if you’re at all worried the TSX Index rally won’t last. While there have been notable headwinds, shares are getting quite cheap at 0.5 times price to book at $8 and change per share.
