Bargain hunters should continue to look through the TSX Index, even as momentum picks up and new highs get smashed through this summer. Undoubtedly, those seeking deeper value have a lot of selection here in Canada, especially compared to the U.S. stock markets. Indeed, the Nasdaq 100 and S&P 500 have done incredibly well over the past year. Arguably, they’ve gotten just a tad too hot for picky value investors to put new money into.
Though I see plenty of intriguing contrarian candidates south of the border, I see much of the same in greater abundance on this side of the border. And for Canadian investors who tremble at the sight of the CAD-to-USD exchange rate, the good news is that there aren’t all too many reasons to make that conversion, especially if you consider yourself a long-term value investor who loves swollen dividend yields.
The case for buying Canadian (over U.S.) high-yield dividend stocks this summer
Though there’s no shortage of dividend juggernauts in the United States, I’d argue that dividends are richer, on average, in Canada. Indeed, there are plenty of incentives to stick with TSX dividend stocks. Most notably, the Canada dividend tax credit can save dough on eligible stocks within a non-registered account (not a Tax-Free Savings Account, or TFSA, or Registered Retirement Savings Plan, or RRSP, for example). For U.S. stocks, you’ll also be on the hook for that dreaded U.S. dividend withholding tax, which skims 15% right off the top of your dividend if you’re investing with your TFSA or a non-registered account.
Things are different for your RRSPs, which you may find a better fit for your yield-heavy U.S. dividend stocks. As always, though, make sure you put in your own research and consult a tax specialist or your financial adviser to optimize your game plan.
Indeed, Canadian dividend payers tend to be yield-heavy, somewhat more tax efficient, and, in many cases, a heck of a lot cheaper. In this piece, we’ll check out one of the best bargains that I believe are worth buying with both hands as we roll into the midpoint of June. I like to call them the dividend knights, which are informally described as dividend stocks with steady records of dividend appreciation and TSX-beating gains.
Canadian Natural Resources
Canadian Natural Resources (TSX:CNQ) is a true dividend knight in shining armour, with the stock now up more than 174% in the past five years. It’s a $104 billion leader in the Canadian oil patch and it’s proven to be far better managed than many peers.
It’s one thing to have lots of resource-rich assets, but it’s another to have the talent to extract such resources in the most economical way possible. CNQ isn’t just a buy for its assets; it’s a buy for its strong stewards. With a 4.13% dividend yield, CNQ is also a yield heavyweight that sports top-notch dividend-growth prospects.
Simply put, if you seek capital gains, dividends, and growth, CNQ stock looks like a magnificent candidate to buy and hold for decades. Finally, the stock’s still cheap at 14.4 times trailing price-to-earnings ratio despite the magnitude of the rally behind it.
Just fasten your seatbelt because CNQ stock could be a rough ride with its 1.95 beta, which entails a high degree of correlation (market risk) to the TSX Index. After a recent correction off all-time highs, I view CNQ stock as a solid enough value idea to stash it in a TFSA for the long run.
