For Safety and Passive Income, Check Out These 2 Stocks

Various Canadian dollars in gray pants pocket

Even some of the most robust, high-yielding blue chips can’t seem to steer clear of volatility this fall! Undoubtedly, risk-free rates keep rising, and they continue to act as a pulling force on the share prices of most companies. Some firms feel the pain of higher interest more than others. When it comes to the telecom stocks, rates have been a horrid thorn in the side for quite some time.

Indeed, even the stability of steady utility stocks is coming into question this year, with shares of Fortis (TSX:FTS) correcting violently off 52-week highs.

Fortis stock: A utility stock to buy while it’s still on sale

Now down just north of 17% from 2022 all-time highs, the steady utility play offers an incredibly compelling 4.41% dividend yield. The stock looks incredibly cheap, too, at just 18.1 times trailing price-to-earnings (P/E). For the magnitude of predictable earnings (and dividend) growth you’re getting from a name like Fortis, I’d argue a far fatter premium is warranted.

Although a yield north of 4% in Fortis seems enticing, it’s still not quite as juicy as the rate of Guaranteed Investment Certificates (GICs), which seem to have higher rates posted every time you check! Indeed, it’s not uncommon to get a one-year GIC for a rate well north of 5.5% now. Indeed, 6% could be coming very soon to a bank near you!

Such rates on products that don’t require you to risk invested principal is pretty unprecedented for today’s young investors. We’ve all gotten so used to low rates that the recent rate surge has caused a bit of worry. Could the glory days of stocks be over now that the days of cheap money are over? Not necessarily. Of course, rates can be viewed as gravity for stocks. But many of today’s top earnings growers don’t need a zero-G environment to do well over time.

As rates come down again (rates don’t only go up, just like stocks don’t always go up!), I’d argue many firms who’ve made the effort to persevere through today’s rocky climate will be in better shape once the economy returns closer to normal levels. That means an environment where inflation is closer to 2% (inflation has mostly been tamed, but food and housing remain way too hot) and an economy that’s not on wobbly legs.

BCE stock: How high can the dividend yield climb?

If you’re a fan of passive income, you’re probably keeping a close watch on shares of BCE (TSX:BCE), if you’re not already a shareholder. The stock was a huge dud in 2022. And in 2023, things have gotten no better. After another rough week that saw BCE stock shed 2% of its value, the telecom titan is down around 31% from its 2022 all-time high.

Indeed, few are talking about 5G, Canada’s climbing population, and calls for more mobile data. Of course, a recession could paint an even grimmer picture for the ailing telecom firm. Cuts to the media segment and other areas could free up capital to keep the dividend on stronger legs once a recession does hit.

Regardless, investors had better hang onto something as the historic selloff in the name continues. Right now, the stock yields 7.64%. Should it surpass 8% or even 9%, you can bet that dividend cut talks could really start to pick up. For now, I’m mildly bullish, but I am aware of the rough patch that could lie ahead.

If you’re looking for a dividend play for the next 10 years, BCE stock looks like a buy here. Anything less than two years, and I’m not so sure, especially if we’re in for a hard landing for the economy.

The post For Safety and Passive Income, Check Out These 2 Stocks appeared first on The Motley Fool Canada.

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Fool contributor Joey Frenette has positions in Fortis. The Motley Fool recommends Fortis. The Motley Fool has a disclosure policy.