Buying the dip of a fundamentally strong stock boosts your returns. Imagine buying Suncor Energy (TSX:SU) and Canadian Natural Resources (TSX:CNQ) at their pandemic dips. No one knew that the oil and gas sector would become the next gold mine. All a knowledgeable investor could forecast was that the oil price would recover when the lockdown ended.
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What is the benefit of buying dividend stocks at the dip?
In 2020, the energy sector suffered losses because of a demand shock triggered by the lockdown. Suncor even slashed its dividend for the first time in 18 years. Since this demand shock was induced and not a shift in consumer behaviour, it was a given that demand would return when lockdown eases. Investors should have the financial capacity to hold through a downturn. Those who manage to sustain the dip are rewarded through recovery.
Selecting Suncor and Canadian Natural Resources to buy the dip was a no-brainer, as they are the top two oil producers in Canada. They have sustained steep oil price dips and rallies and become efficient over time through financial discipline. Their +20 years of dividends prove their financial discipline and ability to wait through the downturn.
A $10,000 investment in each of the two stocks anytime between April and December 2020 would have bought you 757 shares of CNQ and 435 shares of Suncor. Today, this $20,000 investment would have earned you $2,936.5 in annual dividends. That’s a 30% dividend yield on your investments made possible by the significant growth in dividends per share by the two companies in this cyclical rally. This dividend will keep growing, although at a slower rate.
| Year | CNQ dividend per share | $10,000 investment in CNQ @$13.2/share | SU dividend per share | $10,000 investment in SU @$23/share | Total Dividend Income |
| 2026 | $2.50 | $1,892.50 | $2.40 | $1,044.00 | $2,936.50 |
| 2025 | $2.35 | $1,778.95 | $2.28 | $991.80 | $2,770.75 |
| 2024 | $2.14 | $1,618.09 | $2.18 | $948.30 | $2,566.39 |
| 2023 | $1.85 | $1,400.45 | $2.08 | $904.80 | $2,305.25 |
| 2022 | $2.30 | $1,741.10 | $1.88 | $817.80 | $2,558.90 |
| 2021 | $1.00 | $756.05 | $1.05 | $456.75 | $1,212.80 |
| 2020 | $0.85 | $643.45 | $1.10 | $476.33 | $1,119.78 |
| Value of Shares | 757 shares | $49,962.00 | 435 shares | $40,885.65 | $90,847.65 |
That’s the power of buying the dip of a dividend stock. This was the best-case scenario. Can you replicate such a scenario anytime soon? Yes, but the dividend may not last long.
The next growth cycle
When oil prices cool, gold prices surge. This has been the trend of the post-COVID world, where geopolitical conditions have deteriorated. Gold price surged from around US$2,000/oz in 2020 to US$4,500/oz in 2026. This price could cross US$5,000/oz as central banks worldwide increase their gold reserves. The current situation seems to unfold a 1980s-like oil crisis.
Gold surged 400% in just 16 months in 1980 as the 1979 Iranian Revolution and the oil shock raised fears that oil-producing nations might abandon the U.S. dollar. Moreover, the United States suffered from stagflation, forcing investors to seek safe-haven assets.
In the current environment, Iran has once again come into the limelight, threatening 20% of the global oil supply. Major oil-importing countries are diversifying their oil supply to reduce dependence on a few nations. They are rationing oil and moving to alternative green sources, which could affect long-term oil demand if the supply issues continue. Countries are buying gold as their confidence in the dollar shakes. The gold price has already surged 150%.
Now may be the time to start selling oil stocks and instead buy gold stocks, before the 1980-like crisis resurfaces.
Two Canadian dividend stocks worth buying in the dip
Lundin Gold (TSX:LUG) stock has already dipped 26% from its April high as gold prices cool from over US$5,000 to US$4,500/oz. Now is the time to buy the dip as the gold miner will give a variable dividend equivalent to 50% of the free cash flow above $300 million. Its fixed quarterly dividend is $0.30, but the company declared a $1.15 dividend per share in the first quarter. Last year, it paid a $2.75 dividend per share, almost four times the annual fixed dividend of $0.6.
Power Corporation of Canada is another stock to buy at any dip, which could be triggered by a market downturn. The financial holding company can sustain a recession and recover along with the stock market performance.
