As the Bank of Canada stays on pause for a while longer, perhaps until inflation grows too hot to handle in the second half, in which case, I’m inclined to lean more towards rate hikes rather than more cuts (a case could be made that we’ve had too many cuts already), investors may wish to look to dividends and other yield plays to help make it through what could be another affordability crisis.
Indeed, higher rates tend to work against some of the higher-yielders, especially the capital-intensive ones, but if you’re a fan of the yields you see today and, most importantly, the slate of prices, I see no reason to time the Bank of Canada or rates. At the end of the day, there really is no guarantee that the decent yields you see today will be around in a few months from now, especially if, after a long Bank of Canada pause, the rate cuts are back on the table.
As share prices rise, yields tend to move lower. Just look at the big bank stocks and what the past year of appreciation has done to dividend yields. The 2-3% range is now more common than the 4-5% range. Could sub-2% yields be the new normal as bank stocks continue leading the charge higher? Time will tell. Either way, I think the following dividend stocks are still quite generous and are worth grabbing before any additional appreciation causes more yield compression.
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Bank of Nova Scotia
Bank of Nova Scotia (TSX: BNS) shares have already seen quite a lot of yield compression in the past year and a half. Still, the yield sits on the higher end compared to its peers in the Big Six, with a yield currently sitting at 4.15%.
That’s certainly quite modest for Bank of Nova Scotia standards, but given the fundamental strength that’s working wonders for the stock, I’d say the dividend payer is still a pretty decent deal. When you weigh the potential dividend growth ahead, I’m certainly not against paying 15.4 times trailing price to earnings (P/E) for a name that’s within 2% of its highs.
With KeyCorp adding to the bottom line and plenty of growth runway in the U.S. market, I think Bank of Nova Scotia has become the best version of itself, and I think the market is only starting to warm up to such a realization. Could Bank of Nova Scotia be one of the last great dividend payers with yields over 4%? Perhaps of the big banks.
TC Energy
TC Energy (TSX: TRP) has also seen a lot of share price appreciation and yield compression. The 3.87% yield is on the lower end, but compared to the market, it’s still quite decent. And when you consider the growth tailwinds at play (AI’s appetite for gas), I still think the stock has become way too cheap.
The company recently announced plans to expand in response to impressive demand in the U.S. With more potential to pursue such growth projects and a still reasonable 26.5 times trailing P/E multiple, I consider TRP stock to be in a great spot and more than worth buying at close to peak levels. In other words, TC Energy’s foot is on the gas. No pun intended.
