As the year comes to a close, investors might wish to have a closer look at two of the most compelling dividend payers to see how they stack up. Undoubtedly, it’s been a huge year for the big banks, and while a correction may not be too far off, I still think that waiting around for one could entail a great deal of upside risk (or risk of missing out on further gains).
Of course, chasing stocks just because of momentum can be a strategy that entails the most near-term pain, given that momentum can turn furiously. That’s why I’d consider the fundamental picture and value to be had before even giving thought to the technical momentum riding behind a stock.
The magnitude of momentum should be an afterthought for long-term investors seeking to do well over the long run by buying stocks at prices at or perhaps below one’s estimate of intrinsic value. In some instances, like with the Canadian banks, there are fundamental drivers that warrant paying a bit more of a premium on the names.
And while the days of swollen yields and dirt-cheap multiples have been replaced by modestly sized yields and slight premiums (at least to historical averages), I can’t say I’m against the Canadian financials as they continue to make the most of the cyclical upswing.
Perhaps the recent strength marks just the start of a multi-year bull run. Either way, I think investors should continue to average into their favourite dividend stocks, even if things do seem a bit overheated. If a pullback does arrive, one can always increase their position!
Let’s check in on two names that still have attractive yields (far over 4%) and valuations that aren’t all too frothy, at least in my view.
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Bank of Nova Scotia
Bank of Nova Scotia (TSX: BNS) is perhaps best-known as Canada’s most internationally diversified bank. While exposure to the Latin American markets could mean more turbulence when the world economy is in a tougher spot, it also entails greater upside when things are quite heated. At just shy of 18 times trailing price-to-earnings (P/E), the Canadian bank’s shares do look to be on the pricier side.
In fact, they’re the loftiest I’ve seen them in quite a while. And while the 4.4% dividend yield is still respectable, it’s far less than investors have come to expect in recent years. After a huge rebound year, powered by huge earnings beats and more exposure to the booming market south of the border, I’d be inclined to think Bank of Nova Scotia, a historically-discounted bank, is now worth a premium.
As the Bank of Nova Scotia continues its expansion into the U.S., I wouldn’t want to bet against the name that seems poised to deliver capital gains and huge dividend hikes over the medium term.
Enbridge
Enbridge (TSX: ENB) is a pipeline giant with a 6% dividend yield and multiple revenue streams to look forward to in 2026. But just how much of the cash flow boost is priced in? At 25.5 times trailing P/E, I’d say a lot. Like BNS shares, ENB stock is looking to be on the pricier side of the range.
Given the relative lack of momentum in the past year, I’d be more inclined to be a buyer of BNS shares over the pipeline heavyweight. Sure, ENB stock has a higher dividend yield, and there’s more growth on the way, but in terms of tailwinds, I must say I find them to be more pronounced in the banking scene. As such, BNS stock looks like the slightly better bet for 2026.
