The TSX Index has been a rather smooth ride up this summer, but underneath the surface, there has been quite a bit of choppiness, especially when it comes to the big dividend payers. With an awful Wednesday in the books for the big Canadian banks, which are due to report earnings very soon, and a turbulent time for some of the midstream energy heavyweights, I think that investors should be ready to take advantage of any dips as a correction looks to hit specific names.
In my view, the top-tier dividend growers look like worthy bets as yields start to climb back again. While there could be a broader Canadian market correction, I certainly wouldn’t wait around since there’s ample value today, and perhaps the already-penalized dividend stocks might take less of a hit to the chin if the rest of the TSX Index were to start rolling over, perhaps into a correction.
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Enbridge
I’ve been waiting for a dip in Enbridge (TSX:ENB) all year, and investors finally have a shot to snag the name at close to 13% off all-time highs. The dividend yield is just shy of 5.5% and looks quite bountiful, even as the technical picture begins looking a bit scary. Buying corrections is never fun, but in the case of Enbridge, I think that income-oriented investors might wish to brave the recent wave of negative headlines for a shot at more yield for less.
As new projects enter service, boosting cash flows, Enbridge stands out as a dividend growth all-star. But at the same time, investors aren’t fans of the latest quarter. The results weren’t awful, but they clearly fell short, given how high the stock and its valuation climbed. With a hefty debt load to trim away at and some caution facing some of the midstream energy giants, perhaps there’s less room for outsized dividend hikes.
Either way, the long-term story remains intact, and for that reason, ENB stock remains a worthy option on the way down.
Bank of Montreal
Bank of Montreal (TSX:BMO) got crushed close to 4.5% on Wednesday in what was a terrible day for the big banks. Indeed, it’s going to be a scary earnings season, as I’ve noted in a prior piece encouraging investors to wait until after the numbers for a shot to buy shares at lower prices.
With names like BMO taking a hit going into the prime of earnings season, perhaps the worst of the dip might come in ahead of what will be some very high expectations. In my view, this latest profit-taking is more than warranted, and while it’ll be tougher to play the name into earnings now that shares are more than halfway to a correction, I would be tempted to step in if that yield gets back above 3%. Indeed, the banks were expensive, but now they’re starting to come in.
Whether earnings season brings back the bargain multiples, though, remains the big question. Either way, I think the Wednesday hit was overblown and think some of the earnings expectations have already come in by quite a bit. Shares of BMO are down around 6% for no real good reason. Even if a blowout result can’t push BMO back to new highs, I think it’s hard to ignore the latest slip, which has been a long time coming.
