With the S&P 500 surging to new heights, it’s becoming a little bit harder to come by a market bargain with an outsized dividend yield. Of course, there are still ample high-yielding names that are down and out, but if you’re not a deep-value investor who’s interested in a name that’s in a multi-year slump, perhaps it makes more sense to pick up the shares of a Canadian name with a roughed-up stock, but a business that’s continuing to hum along.
Either way, I find that it’s a bit easier and possibly more rewarding to go value hunting on the TSX Index for more yield and less of the baggage that typically accompanies fallen stocks that only happen to have higher yields due to a few subpar quarters or something else that’s of concern (maybe industry headwinds, regulatory hurdles, or intensifying competition, like in the telecom scene).
Indeed, whenever you’ve got newfound share price momentum and a generous dividend yield, you might also be setting yourself up for above-average dividend growth as well. In any case, this piece will look at two names with strength and yields that are still hefty enough to help investors boost the passive income part of the portfolio.
Here are names that are hovering close to 52-week lows, but are still worth checking in with for the nice yields and ability to make up for lost time.
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Telus
No surprises here, with Telus (TSX: T) now just 3% or so away from not only 52-week lows, but multi-year depths. The stock has a yield of 10%. And no, that’s not a typo, with shares now going for $16 and change.
At this rate, it seems like a double-digit percentage yield, and a dividend reduction at some point within the next 18 months will be hard to steer clear of. Though there are numerous scenarios where the stock could turn a corner, and the dividend could make it out of the sell-off in one piece, I do think that some odds of a dividend cut are already priced in.
Indeed, many analysts have become increasingly skeptical of the name despite recent cost cuts and the potential for the financials to improve by the end of the year. The Canadian telecom industry underwent a painful reset, but as the top players head into efficiency mode, I think the market might be underestimating their potential, even if the lower-hanging fruit has already been grabbed.
General Mills
General Mills (NYSE: GIS) is a U.S.-traded name, but one that I think Canadians should have on their radars as well, especially as the yield swells above the 7% mark. Like Telus, General Mills shares are flirting with multi-year lows, and while the sustainability of the payout could come into question, I still think there’s ample value to be had in the name at 8.6 times trailing price-to-earnings (P/E).
Of course, there’s no easy way out of the slump for the popular cereal maker. That said, if you’re light on consumer staples (the TSX Index doesn’t have nearly as many) and you’re confident in the firm’s turnaround potential, I think it might be time to keep tabs on the name as shares look to bottom out at some point.
