High-yield dividend stocks can really help beef up your quarterly (or in some cases, monthly) income stream, provided you can bear the risks that accompany such firms. Undoubtedly, higher yields tend to come with higher risks, especially if we’re talking about the shares of companies that have fallen well below their all-time highs, with dividend yields on the higher extreme of the 10-year historical range.
These so-called “accidentally high yielders” might come with a lot of fundamental baggage, the odd headwind, and maybe a few company-specific operating fumbles. As it turns out, such woes are not so easy to solve, especially if the same managers who were aboard during the downfall are still running the show behind the scenes.
Of course, it can be just as exciting to buy the dip in a fallen stock with a swollen dividend yield with the thought of a major turnaround. Who doesn’t want outsized comeback gains alongside a “locked-in” dividend yield while it’s still well above the historical average? In some ways, it’s the risk-taking income investors‘ equivalent of the breakout momentum stock.
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The high-yield comeback plays
In any case, this piece will look into one higher-yielding stock that I view as checking all the boxes. Shares are cheap, the yield is generous (and, in some cases, still growing), and there’s a rebound plan in place. And while things could get much more volatile over the next year or two, I think the next 10 years are where the real opportunity lies for income investors. Undoubtedly, patience can be rewarded greatly when it comes to the fallen high-yielders. Don’t believe me?
Just look at the Canadian bank stocks and where they stood around three years ago. They were unloved, lacking in momentum, with huge yields, and when it seemed like it was time to give up, it turned out to be a generational buying opportunity ahead of one of the fiercest bull runs in recent memory. I still like the banks, but the yields are far more modest today than just a few years ago.
So, this begs the question: where are the mega-yielders today that might be in for a bit of a multi-year comeback?
BCE
Shares of BCE (TSX:BCE) might not have gained many bulls when it reduced its dividend a while back. And while some income investors felt betrayed, I felt like the telecom firm ripped the band-aid off in one go. Sure, it’s painful to do that, but afterward, fears and chatter over the health of the dividend will stop. Are there higher-yielders out there? Yes, there are, but they also tend to be associated with higher multiples and risks. Arguably, it’s best to go with the high, but not absurdly high yield, with the more modest risk profile.
And right now, the dividend looks as steady as it has in a number of years. Sure, a 4.9% yield isn’t much to write home about, but it’s secure and probably poised for growth, even if the comeback doesn’t happen anytime soon. At the end of the day, BCE stands out as one of those lower-beta plays that will get things right with time.
Just a few weeks ago, BCE reported a decent quarter and reaffirmed guidance. Crave subscriptions were actually a strong point for the telecom titan. And with the firm now running leaner, I find that the fallen telecom is a dividend staple to stash away, as the next 10 years could witness BCE’s slow-and-steady return.
Will it ever be a market darling again? I have no idea. But I do like the path forward, the latest quarter, and the 5.1 times trailing price-to-earnings (P/E), which I find absurdly low given the calibre of cash-generative assets you’re getting.
