The broader stock markets may be viewed as a tad on the lofty side by some. But over here in Canada (the TSX Index), there seem to be a lot of great value plays, some of which may be going for bargain prices.
Undoubtedly, the Canadian stock market also holds some really yield-heavy dividend stocks. Though chasing yield is never a good idea, I view many of the swollen dividends in Canada as more than safe. Of course, investors should put in their own homework to ensure free cash flow generation is enough to sustain a particularly high dividend payout.
In this piece, we’ll check out two commodity-focused dividend stocks that can help fortify an investment portfolio (let’s say a Tax-Free Savings Account, or TFSA, or Registered Retirement Savings Plan, or RRSP) from rockier market conditions. Indeed, many investors have been spoiled over the last few months, with strong gains arising out of the tech scene. The mega-cap tech stocks south of the border have also been incredibly strong.
As valuations continue creeping higher, however, I’d look to move some of the gains out of the momentum plays, perhaps rotating them into the Steady Eddie dividend plays that have what it takes to ride out a market correction.
Indeed, market corrections tend to hit when we least expect them. That’s a part of what makes them so shocking. When times are good, all are hopeful, and some begin to lose sight of the risk factor. That’s the time when investors should exercise caution and only pay for stocks that are trading at reasonable valuations relative to their historical averages.
In this piece, we’ll check out Nutrien (TSX:NTR) and Suncor (TSX:SU) to see which may be a right fit for your long-term TFSA or RRSP fund.
Nutrien
Nutrien is an agricultural commodity producer that’s incredibly well-managed with competitively low costs of production. The stock soared during 2021 (and the early innings of 2022), only to come crashing down in late 2022 and 2023. Though only time will tell when the falling knife will ricochet (shares are down around 5% year to date), I think the name is starting to become attractive again for those who seek a nice dividend yield and the unique exposure the firm provides.
Undoubtedly, commodities such as potash can be quite cyclical. And though there will be ups and downs, I think it’s the long-term that matters most. Although it’s hard to get in at the bottom of a downcycle, it makes sense to be a net buyer amid a cyclical sump as long as you’re committed for the next five years at minimum.
Of course, there’s a nice dividend (4.04%) to collect while you wait for industry dynamics to shift. In any case, NTR stock is a great portfolio diversifier and low-cost income pick for Canadian investors going into March 2024.
Suncor
Suncor stock has also been a rocky ride of late, with shares essentially consolidating since posting some incredible 2021-22 gains. At 7.2 times trailing price to earnings, with a 4.77% dividend yield, I consider the Canadian energy play a great buy at $45 and change per share.
The company is well-equipped to benefit from operational and safety improvements for many years to come. For now, I think shares are unjustly undervalued, and I view them as a top energy pick for investors bullish on the price of oil.
