We’ve all been forced to get used to volatility over the past few years. From the 2020 stock market crash to the 2021 boom in tech stocks and the many years of inflation that followed, it has been quite an unorthodox start to the 2020s. As inflation winds down in the U.S. and Canada, central banks may be able to take their foot off the rate-hike pedal.
Heck, a few rate cuts may be in the cards as soon as next year. After the bullish start to November, it certainly seems like we’re in for more of a soft landing. The rally in Canadian bank stocks has been a huge sigh of relief. Despite the past few weeks of relief, investors should continue to play the long game and nibble at the value stocks that come across their radar.
There’s no shortage of market bargains out there, even as the market rally looks to kick into high gear. Though today’s slate of deals is intriguing, investors should always be ready with dry powder on the sidelines to take advantage of the inevitable corrections that could come our way over the next year.
Let’s consider two dividend stocks that I view as absolute rock stars. They look cheap, sport handsome dividend yields, and seem likely to increase their payouts gradually over time.
Scotiabank
Scotiabank (TSX:BNS) stock has been in the penalty box for well over a year now, thanks in no part to its emerging markets exposure, which has been a larger source of risk than reward for the bank.
As the world economy recovers, I do think the emerging markets banking business could start doing more of the heavy lifting. Indeed, emerging markets entail higher risk, but for a shot at greater rewards. As Canada’s most international bank, I think Canadian investors seeking to expand their geographic horizons ought to strongly consider picking up a few shares while they’re so heavily discounted. At the end of the day, I believe Canadian investors should seek to diversify internationally, rather than stay 100% in Canadian equities.
The stock recently bounced 8% off its October lows. Whether it’s the start of a bigger upside move remains to be seen. In any case, I view the stock as cheap at 9.5 times trailing price-to-earnings (P/E). The 7.04% dividend yield is also incredibly enticing, and unlikely to last should BNS stock continue to recover.
TC Energy
TC Energy (TSX:TRP) is a pipeline firm that doesn’t get nearly as much respect as some of its higher-yielding peers. At around $50 per share, the stock yields 7.47%. And it’s a relatively safe payout that could keep growing as the firm moves past industry headwinds. Undoubtedly, the midstream energy space is out of favour, but it’s a great place to look if you seek big passive income at a modest price.
The stock is around 33% below its 2022 highs. The recent bounce is encouraging, but it’s too soon to deem that shares have bottomed out. Either way, I think the stock is worth stashing in a long-term income fund.
Finally, TC Energy doesn’t have as much leverage and rate risk relative to some of its more indebted rivals in the space. This bodes very well for the firm’s dividend health.
