With some investors anticipating the end of the war in Iran, broad markets might start to settle down again after a first quarter that’s seen no shortage of volatility. Undoubtedly, beyond the Iran war and the oil shock (can you believe that oil prices are now closer to US$115 per barrel?), the AI narrative is continuing to unfold in the background.
With the Magnificent Seven trade at a standstill after plunging in recent quarters, I’m sure many are wondering if it’s time to move on from big tech and to perhaps allocate a bit more of those investment dollars towards hard assets, commodity producers, and less-hyped businesses that have more in the way of cash flow predictability.
While I’m still a fan of the mega-cap tech titans that seem to be going all-in on the AI boom, I do acknowledge that the path forward might not be as expected. Sure, a V-shaped bounce right back to all-time highs seen several months ago would be nice, and it’s certainly realistic, especially if the big firms deliver on the AI monetization promise.
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The unease over the war in Iran and question marks surrounding AI and tech make dividend payers compelling
That said, investors are losing patience, and I don’t think they’ll be in a hurry to get back in the hyperscaler waters if the profits from AI aren’t flowing in quickly and at a magnitude that’s heftier than expected.
Either way, if you’re one of many investors who doesn’t have much to show for their investment in much-hyped AI stocks, perhaps it’s time to think about shifting gears to dividends, rather than doubling down on every dip that may or may not be met with solid rewards in a year or two from now. Certainly, the tech sector could stay stuck for a few more months or the rest of the year. Who knows?
Maybe the AI-driven fatigue in tech might last more than a year?
I don’t know about you, but I want to get paid a cash dividend for my patience, especially as momentum and hype take a backseat to profitability, value, and predictable cash flow streams in an era where big tech seems to want to normalize big spending budgets on next-generation tech.
Perhaps a barbell approach would work in this climate as you buy the dip in fallen tech plays while they’re out of favour while you also go for the dividend payers that are cheap and working out well in this environment.
TC Energy
TC Energy (TSX:TRP) shares have a modest 4% dividend yield and go for just over 25 times trailing price-to-earnings (P/E). Not bad for a steady, predictable cash cow of a company that’s been feeling the wind at its back in recent years. The stock is up over 84% in two years. And I have a feeling the rally isn’t over with quite yet, especially as the firm looks to collect on big projects it invested in previously.
Combined with the AI-driven demand for energy (and, with that, energy transportation services) and the potential for U.S. energy infrastructure projects, I couldn’t be more bullish on the firm, even though the stock isn’t as yield-heavy or as cheap as it once was. Sometimes, you’ve got to be willing to pay for strength, given the improved fundamentals.
So, if you’re looking for cash flow-generative hard assets, the pipelines are compelling right here, at least in my view, even if it means paying a fair price (rather than a heavily discounted one) for shares.
