With the S&P in a bit of a cooling-off phase after a hot start to May, questions linger as to whether the overheated and mildly overbought conditions will set the stage for a vicious pullback. Another 10% correction in the S&P 500 and Nasdaq 100 certainly wouldn’t be out of the ordinary, in my view.
And while it could be discouraging to investors who were cooling for a nice melt-up moment led by the AI trade, it still seems that the latest melt-up rally in U.S. stocks might need a bit of digesting before the next leg higher. Whether it’s the next earnings season or a breakthrough within AI remains the big question. Either way, the TSX Index isn’t just sitting around, waiting for the S&P to take the lead before moving higher.
On Tuesday’s session, one that saw U.S. markets dip slightly, the TSX Index was down just under 0.3%. But, underneath the hood, it was the large-cap dividend payers that did much of the heavy lifting. Vanguard FTSE Canadian High Dividend Yield Index ETF (TSX: VDY), my go-to gauge of the larger-cap Canadian dividend payers, was actually up a full percentage point on the day.
With that dividend-focused exchange-traded fund at fresh highs and a flight to quality dividend payers going on beneath the surface of the TSX Index, investors might wish to consider the names they’d be willing to buy at a time like this, when AI and tech are in a digestion (and valuation reset) phase, while dividend payers look to steady the ship. In many cases, it’s these same dividend names that remain the value plays despite slightly higher prices of admission than just a few months ago.
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Nutrien stock: One of the few large-cap dividend payers that’s corrected
In this piece, we’ll check in on a dynamic dividend stock that still looks like a great deal. Enter shares of fertilizer play Nutrien (TSX: NTR), which I’ve pounded the table on in a number of previous pieces. It’s one of the few Canadian large-cap dividend payers with a yield over 3% that’s in correction territory.
Of course, shares are still up just north of 13% year to date. Much of the correction has only wiped out the parabolic surge experienced at the start of March when investors hit the panic button over the start of the Iran war and the closure of the Strait of Hormuz.
Indeed, a prolonged closure of the Strait impacts fertilizer just as it does energy. And while time will tell how the “double blockage” resolves itself, I still think that Nutrien stock remains a great bet while investors reconsider the agricultural commodity kingpin’s next moves. The 3.1% dividend yield is still quite respectable, and with a 12.5 times forward price-to-earnings (P/E) multiple, I think there’s something that the market might be missing at this moment of mild pessimism. In my view, Nutrien stock is about far more than just the price of fertilizers.
As the company seeks to improve its focus on higher-margin operations while rewarding shareholders for their patience, I see Nutrien as a structural winner on pause after a quick correction following a short-lived spike. Personally, I’d much rather be a buyer with a more conservative guide in the books. I’m a big fan of the name and would treat any dips as a chance to top up.
