Shrinkage alert: Only a few bargains left among dividend growers with inflation-beating yields
You had to know blue-chip dividend stocks would benefit when interest rates fell, but the recent rally for these old familiars is still a welcome sight.
Investors who owned these stocks through the havoc caused by rising rates should feel vindicated in their decision to hold. Those who bought in the past 12 to 18 months – I’m in this group – have been able to lock in high yields and then watch their shares rise in price.
Market strategists have mixed views about what’s ahead – some see dividend stocks benefiting as investors reallocate money now sitting in interest-paying accounts with returns that look less and less competitive. Others see how much these stocks have recovered lately and wonder if a pause is coming.
What we know for sure is that the bargain bin of beaten-down blue-chip dividend stocks is emptying quickly. To see what remains, let’s run a quick screen of stocks in the S&P/TSX 60 Index as tracked by Globeinvestor. We’ll pare down the list by seeking stocks with:
- Dividend yields above the current 2-per-cent inflation rate-five-year annualized dividend growth of at least 3.4 per cent, which is the average inflation rate over the past five year
- A 12-month return this is either flattish or down
Topping the list of stocks making it through this screen is much-lamented BCE Inc. The yield is an attention-grabbing 8.6 per cent, while Globeinvestor pegs the five-year dividend growth rate at 5.1 per cent. The high yield suggests investors have concerns about the sustainability of BCE’s dividend policy.
Other stocks that came up using this screen:
- Magna International : This automaker’s shares have been hurt by flat sales and stagnant vehicle production in Europe. The recent dividend yield is 4.6 per cent, while five-year dividend growth comes in at close to 7 per cent.
- Nutrien Ltd. : Shares have fallen as a result of a downturn in the global fertilizer business, and this in turn has driven up the dividend yield to 4.3 per cent; the five-year dividend growth rate is 5.4 per cent.
- Open Text : Shares of this tech company have been strong lately, but they’re down for the year to date; the dividend yield is 3.2 per cent, and the five-year dividend growth rate is 9.7 per cent.
- Cenovus Energy Inc. : An underperformer in the energy sector, with a dividend yield of 3.1 per cent and a five-year dividend growth rate of 21.2 per cent.