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What’s your investing strategy for 2024? Are you looking to buy income stocks that are trading low and lock in a >6% dividend yield for the long term? Some stocks fit the criteria. While high yield brings high risk, diversifying your portfolio across different sectors can mitigate this risk.
Three income stocks (>6% yield)
Most dividend stocks are still trading at bearish levels, as investors wait for the Bank of Canada to begin interest rate cuts. The central bank survey suggests that market participants expect the rate cut to begin in the spring and end the year at 4%. Once the rate cuts begin, some income stocks could see a rebound.
Hence, now is a good time to buy three dividend stocks at a lower price and lock in a yield greater than 6%.
- CT REIT (TSX:CRT.UN): 6.25%
- TC Energy (TSX:TRP): 7.25%
- Timbercreek Financial (TSX:TF): 9.6%
The three stocks will not only give you diversification across sectors but also across market caps. Let us see how.
CT REIT
CT REIT is a mid-cap stock with a $3.38 billion market cap. Its exposure is in the retail real estate market, with 91.9% of its gross leasable area leased by Canadian Tire. While this increases concentration risk as there is a dependency on a single tenant for over 90% of the rental income, it is also a hedge against lower occupancy. CT REIT doesn’t have to worry about finding a tenant for their new properties. It also undertakes enhancements to the retailer’s existing stores. As per the lease, CT REIT can increase rent by 1.5% every year.
Since the REIT distributes 100% of its taxable income as monthly distributions, the annual rent increase and higher rent from enhanced stores and new stores help it grow its distributions by 3%. The REIT’s units are trading 18% below their average trading price of $17.5 as high interest rates have depressed property prices. However, it has not affected its rental income. You can lock in a 6.25% yield and a chance for 15-20% capital appreciation.
TC Energy stock
TC Energy is a large-cap stock with a $53.18 billion market cap. The oil and gas pipeline operator is spinning off its oil pipeline business under the name South Bow. Hence, the company has not given any information about its 2024 dividends. However, it stated that the combined dividends from the two companies would match the dividends of TC Energy.
The toll money from the transmission of oil and gas through pipelines will keep funding its future quarterly dividends. After falling 12.5% on the spin-off announcement in July 2023, TC Energy stock has surged 13%. Now is a good time to buy this stock. While the spin-off will create short-term weakness, it will add shareholder value in the long term.
Timbercreek Financial stock
Timbercreek Financial is a small-cap stock with a $598 million market cap. It is in the business of lending, giving short-term loans and mortgages to REITs. It passes on the interest earned on these loans to its shareholders through monthly dividends.
The company benefitted when interest rates rose as it earned higher interest income. However, a 5% interest rate has slowed loan generations as many REITs paused their development efforts until borrowing became more affordable. Hence, Timbercreek Financial did not increase dividends when interest income increased. In the third quarter, it paid 85.6% of its distributable income, which is manageable and shows the company has the flexibility to continue paying distributions, despite a slowdown in loan originations.
Timbercreek Financial stock has surged 17.5% from its October 2023 bottom but is still trading 24% below the April 2022 level when the interest rate hike began. Now is a good time to lock in a 9.6% yield and a chance at a 35% recovery rally when the rate cut begins.
If you invest $500 in each of the three stocks now, you can earn $115 in dividend income in 2024.
