Who says you can’t have a side of capital gains to go with a generous upfront dividend yield (and long-term dividend growth)? Indeed, some income stocks have really gained ground over the past couple of months. And while chasing stocks after runs may not be everyone’s cup of tea, I think it still makes sense to be a buyer on strength, provided you’ve got enough extra cash leftover to buy into weakness once the next correction does hit.
Of course, we just came off a correction in the first half as Trump tariffs gave markets a shock. Now that investors and analysts have had more than enough opportunity to process tariffs and other negative macro events, I think it’s time to refocus on the next three to five years and the names that could stand to do best as we enter a revolutionary shift, aided by artificial intelligence, which, I think, will spread across almost every sector of the market in due time.
In this piece, though, we’ll concentrate on a few fast-recovering dividend stocks with yields of at least 4%. They’ve beaten the market year to date and could continue to perform in the back half of 2025 and the front end of 2026.
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Bank of Montreal
Bank of Montreal (TSX: BMO) stock is up over 12% year to date and 32% in the past year. Indeed, the $113.5 billion Big Six bank stock has been helping lead the way higher for the group. And while the dividend is no longer above 5%, it’s still at a generous 4.32%. As shares of BMO look to break out (they only recently made new highs), I’d look to be an incremental buyer of the winner that’s poised to keep the win streak going strong.
Even after respectable past-year gains, BMO stock still looks undervalued at 14.6 times trailing price to earnings (P/E). With a clear path to growth and one of the best managers in banking, BMO is more than deserving of a second look for newer income investors seeking to solidify their TFSAs with a proven blue chip.
Looking into the future, I’d expect BMO to really double down on its expansion into the U.S. market. Indeed, Bank of the West was a smart deal that has given the bank a strong foundation that BMO could easily add upon. Either way, the U.S. banking scene is a top area that could help BMO fuel long-term dividend growth that could continue to reward longer-term holders of the stock.
TD Bank
TD Bank (TSX: TD) is another Canadian bank stock that has shone bright for investors this year. If you ditched the stock going into 2025 because of all the money-laundering headwinds that startled investors, you’re probably not feeling great about having to buy back into the name at a 33% higher price.
Indeed, the 33% year-to-date gain caught many by surprise. The good news for those who missed the run is that shares are still absurdly cheap at 10.5 times trailing P/E. With a brilliant new CEO, a strong and growthy 4.2%-yielding dividend, and a potential breakout in sight, I’m inclined to pound the table on the $175 billion titan as it looks to climb all the way back from the vicious plunge of 2022.
Between BMO and TD, I’d go with the latter. It’s a much cheaper stock with a similar dividend yield and a slightly lower beta.
