Dividend yields seem to be swelling with every swift move lower in the markets. Undoubtedly, dividend stocks don’t look as appealing, given where rates are at. And while chasing yield tends to be a recipe for disastrous results, I think this high-rate environment should really change how investors look at the high-yield dividend heavyweights.
Back when rates were closer to 1% — a 4.5%-yielder seemed impressive. Nowadays, we have dividend stocks yielding well north of 7% or even 8%. Indeed, these dividends aren’t necessarily skating on thin ice. As the risk-free rates rise, dividend yields need to be more competitive as more “alternative” investments come to be.
Given how choppy the market has been, it’s not hard to argue that risk-free assets seem like more prudent bets. And they may very well be depending on your time horizon, tolerance for risk, and temperament. If you’re able to take more risk with stocks, I think you should, especially if you’re a young investor (like a Millennial or Gen Z) who has time on your side.
Indeed, time is a great edge that young investors have over their older counterparts. In this piece, we’ll have a look at two yield-heavy investments that could help jolt your passive-income stream. The cost of living has surged. But the good news is that the yields of various stocks and REITs (real estate investment trusts) have as well.
Enbridge (TSX:ENB) is the pipeline juggernaut that’s a likely favourite among those who value passive income. At writing, the stock yields 8.15%. The stock’s in the middle of a violent move lower, with shares down 26% from its 2022 highs. Indeed, the company remains a cash cow, even as the economy fluctuates wildly.
One major concern lies in recent acquisitions the firm has made. Indeed, Enbridge may have snagged a bargain in this rocky climate. But taking on more leverage may not be the best move in the world. Either way, I think concerns over Enbridge’s debt are overblown. The firm is a cash cow that can effectively balance its commitments, including its dividend.
Up next, we have American telecom firm Verizon (NYSE:VZ), which is in the process of bouncing off multi-year lows. Indeed, amid the horrific past few years that saw shares pretty much get cut in half, the stock’s yield has surged to impressive levels. At writing, the dividend yield is just shy of 8%, thanks in part to Monday’s 3.53% pop.
The big up day wasn’t exactly on the back of game-changing news for the ailing telecom. Given how oversold the stock was going into the week, it really didn’t need a whole lot to gravitate higher. Though falling knives are hard to catch, I think long-term investors could stand to do really well by buying into a position here while others throw in the towel.
The bottom line for passive-income investors
Enbridge and Verizon are bruised, but don’t bet against them as they look to spark some kind of turnaround. Their return to glory may very well come sooner than anticipated. And if it does, don’t expect yields at (or around) 8% to last.
Before you consider Verizon Communications Inc., you’ll want to hear this.
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* Returns as of 10/10/23
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