RRSP (Registered Retirement Savings Plan) investors should take advantage of the market’s swoons to get a good bang for their buck. Though market pullbacks and wild swings can make investors a bit uneasy, I think a disciplined temperament through such times is what separates average investors from great ones.
Recently, the Bank of Canada (BoC) held off on another interest rate hike. Though lower inflation has allowed for a bit of a pause, investors shouldn’t expect rates to plunge back to the levels we’ve grown used to over the years. Indeed, it seems unlikely that inflation will fall to that desirable 2% level anytime soon. As such, investors should get used to a higher-rate world. Though the BoC held steady in its latest meeting, it is open to further rate hikes down the road.
Ultimately, it comes down to the inflation data. At the end of the day, inflation is the “invisible tax” that hurts almost all Canadians, whereas higher rates tend to be more painful to those with outstanding debt balances. Though high rates are a headwind for stocks, I think many corporations stand to enjoy productivity benefits (from artificial intelligence and increased emphasis on operating efficiencies) that could help offset the blow of higher costs of borrowing.
In any case, let’s look at two oversold stocks that may be worth pursuing on the way down. Falling knives can be very risky to catch. So, do be ready to average down should more pain be in the cards going into year’s end.
Without further ado, consider Scotiabank (TSX:BNS) and BCE (TSX:BCE), two battered dividend heavyweights worth watching amid their respective slumps.
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Scotiabank
Scotiabank stock is down around 32% from its 2022 all-time high, thanks in part to industry headwinds. Indeed, the banks have been up against it this year. Still, I wouldn’t count Canada’s top banking behemoths out while they’re down. From a long-term viewpoint, they look like magnificent value plays for any long-term-focused portfolio.
During the company’s latest quarter, the pain seemed to be easing, albeit slightly. The company managed to grow its revenue to $8.1 billion, up 2% from the prior quarter. Though earnings per share (EPS) was relatively in line at $1.73, a penny shy of the $1.74 consensus estimate, I still think the latest round of results is an encouraging sign that the worst may be over.
Scotiabank’s international focus is a wild card that could lead to greater growth than peers over the long run. Until now, though, it seems like the international business has introduced more risk than additional reward. At 10.1 times trailing price to earnings (P/E), though, shares look too cheap to pass up. Further, the 6.63% dividend yield is impressive.
BCE
Chasing yield can be a dangerous game. However, BCE and its 7% dividend yield look to be worth considering amid its slump. The stock has come a long way since its $73 (and change) highs, now going for around $55 per share. Indeed, shares are down around 25% from their highs, thanks in part to the heavy weight of higher rates.
Still, the 7% yield is so incredibly tempting, especially if you’re a retiree in search of sustainable sources of passive income. Though the telecom scene has more than its fair share of risks as investors fret a potential recession and the possibility of even higher rates (6% ahead?), I find BCE stock to be a dividend juggernaut that will eventually overcome the pressures.
My takeaway? The blue chip’s dividend is worth chasing. Just fasten your seatbelt and be ready to buy more on the way down!
