In this piece, we’ll check in on a trio of Canadian stocks that still have yields north of 3%. Undoubtedly, the hunt for yield has become a bit tougher in recent years, thanks in part to prior rate cuts and the considerable amount of capital appreciation we’ve witnessed across the board. With the financials – led, of course, by the Big Six Canadian bank juggernauts – continuing to make new highs on a regular basis, while other sectors (perhaps other than Canadian tech) look to move ahead with strength, it should come as no mystery to see the TSX Index yielding just a bit less than what it typically does.
Either way, passive income investors shouldn’t wait for stocks to fall in any sort of market crash before picking up shares of dividend payers. Arguably, it’s better to get a bit less yield and a good amount of newfound momentum. Indeed, for the value-conscious crowd, that might not make a whole lot of sense, especially since hard-hit names tend to be cheaper and more yield-heavy.
In any case, a 3% yield stands as a great balance between growth and income. And when we look at the dividend growth trajectory, the following names, in my view, still look very modestly priced, if not mildly cheap, as we head into the final stretch of May.
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Bank of Nova Scotia
Many of the big banks are starting to see their yield fall below the 3% level. For income investors, that’s a bit discouraging. But for holders of shares, the momentum in the past year alone has just been off the charts. And, in my opinion, there’s no reason to believe the banks are about to reverse course anytime soon, especially as tech and AI efficiencies come for the financial sector.
Bank of Nova Scotia (TSX: BNS) might be the last of the Big Six to see its yield compress to 3%. Right now, the yield sits at a nice 4.1%, even as shares are touching fresh new highs at more than $108 per share. Canada’s most international bank goes for a 16.1 times trailing price-to-earnings (P/E).
That’s expensive for BNS, but cheap relative to the rest of the industry. With a fantastic CEO and runway south of the border, I do think it’s time to rethink BNS. It’s more of a premier name following recent deals and asset sales it has made in recent years.
Personally, I’m a fan of the mix and think BNS stock deserves to trade at a heftier multiple. Either way, the 4.1% yield stands out when the peer group yields closer to 2.5%.
Canadian Natural Resources
Canadian Natural Resources (TSX: CNQ) has been volatile since peaking out back in mid-March, and shares could continue to trade on news coming out of the Middle East. Either way, oil prices could spike or plunge based on the day’s news and how confident investors are in a timely reopening of the Strait of Hormuz. Instead of timing such a needle-moving macro event, though, I’d much rather play the long game with one of the best-run Canadian energy producers out there.
The stock might have regained most of the ground lost in its recent 15% correction, but I think the value case still shines, with shares trading at 11.6 times trailing P/E. In my view, it’s less about where oil’s at and more about how the company-specific operations are going. With a nice 3.7% yield, I think CNQ ought to be a new favourite of income seekers.
