It’s a great time to start thinking about rotating out of a few of the growth-focused names in favour of good, old-fashioned (even boring) dividend stocks, which may very well be the key to doing better than the market averages over the next five years or so.
Undoubtedly, higher valuations across the board don’t bode well for prospective returns. While a painful bear market could certainly fix that, I do think that investors navigating a pricier market environment should insist on picking individual names that have what it takes to outperform the S&P 500 or TSX Index moving forward.
Whether we’re talking about a lower valuation (a lower starting point) or an underestimated growth profile, I think that investors should lean more heavily on the names that pay actual cash dividends. And if there’s a growth plan in place to power frequent dividend hikes, all the better!
In any case, cash dividends and a good amount of appreciation in shares might be the way to outpace the rest of the market, as the growth plays look to consolidate, or worse, pull back a bit after the amazing past three years of gains they’ve had.
If you’re going to ride out more turbulent times, you may as well be paid a fat, growing dividend for your time because, at the end of the day, there’s really no telling where broad markets head from here or how extended multiples will “correct.” Whether stocks move at a slower pace, go flat, or correct, the odds certainly don’t seem the best if you’re going to run the risk of showing up a bit late to a tech trade that’s grown quite crowded over the years.
This dividend play isn’t as crowded and might even be underappreciated given its stellar dividend-growth prospects.
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Sun Life Financial
Sun Life Financial (TSX: SLF) is an insurer that still has an attractive dividend yield of 4.4%. Undoubtedly, the Canadian financials (especially the big banks) have been running hot this year, with yields that have now compressed by quite a bit. As the hunt for yield gets a bit tougher, I think that names like Sun Life, which boast a growing payout and a yield over 4%, really do stand out.
Year to date, shares of SLF have done nothing, all while some of its rivals have taken off. Indeed, the latest third quarter may not have been incredible, but I do think that the long-term fundamentals are still intact. If anything, a lacklustre 2025 could set the stage for a solid 2026.
At just 10.5 times forward price to earnings (P/E), investors are getting a solid deal right here, at least in my view. The big question moving into the new year is whether the “challenged” U.S. business can bounce back. I think it can, especially as the insurance group looks to add to its strength in the new year, thanks in part to robust tailwinds. Will life be brighter for investors with Sun Life in their portfolios? Time will tell. Either way, I like the value and dividend yield to be had right here.
