Passive income investors are spoiled these days, with higher interest rates and higher yields pushing down prices on a wide range of securities. Indeed, the REIT (Real Estate Investment Trust) scene has seen quite a bit of damage to share prices in recent years.
All the while, yields have steadily crept higher, and for the REITs with steady cash flows (or adjusted funds from operations), distributions have stayed intact. As for the dividend stocks, a similar scenario has panned out, with rates pushing down share prices, propping up yields in the process.
With our sights now set on rate cuts (the Bank of Canada could act this year), there’s been a wave of relief for the higher yielders out there. Every dovish tilt and rate cut could spell brighter days in the future for the dividend heavyweights. And as they look to rise again, investors seeking big passive income at reasonable prices may wish to punch their ticket before the days of elevated interest rates come to a close.
Now, it’ll take a few years before rates have a chance to return to the depths from a few years ago. However, if they do, don’t expect the days of safe yields north of 6% (or even 7%) to last. At the end of the day, rates act like gravity, especially when it comes to unprofitable hyper-growth stocks and dividend heavyweights.
Without further ado, let’s check out two dividend plays I like if you’re looking to play lower rates in the quarters and years ahead.
Telus
Telus (TSX:T) is such a great dividend heavyweight, but one that’s fallen out of favour amid rising interest rates. Undoubtedly, telecom dividends are somewhat less appealing, unless they’re a tad higher than historical norms with rates as high as they are. Once rates retreat, though, so too could Telus’s yield as income investors look to pile back into a name that looks much more appealing in a lower-rate world.
Given the productivity boost that generative and predictable AI could provide (not to mention potential deflationary pressures), inflation and high rates may turn into deflation and ultra-low rates in as little as a few years. It’s impossible to tell what the future truly holds. That said, if deflation and rock-bottom rates are in the cards in the latter half of the decade, I’d expect Telus stock to be a more favoured stock pick for income investors once again after its multi-year hibernation.
Of all the telecoms, shares of T look more appealing for young income hunters seeking gains, a dash of growth (the 5G boom in wireless is still playing out!), and consistent quarterly payouts. With a 6.2% yield, T stock looks like a must-buy on any meaningful pullbacks between now and year’s end. Perhaps a slow pace of rate cuts could cause T stock to take a pummelling.
TC Energy
Despite TC Energy (TSX:TRP) stock’s recent rebound off last year’s lows, the stock still has one of the most generous yields out there. At writing, shares yield is just north of the 7% mark. As the Canadian pipeline play looks to overcome various regulatory hurdles, I expect the firm will have little issue paying out such a fat dividend to its loyal investors.
Up ahead, the company is moving forward with its $4.5 billion pumped storage project in the province of Ontario. It’s a big deal that should help support long-term cash flows. All considered, the $55 billion pipeline firm is worth a second look, especially if you’re not one to shy away from midstream energy.
