Income Investors: 2 Discounted Stocks With Growing Yields

Increasing yield

High rates have been bad news for a wide range of companies. Undoubtedly, high-growth tech stocks with not much in the way of profits are one victim of a high-rate world. Capital-intensive firms that offer income investors big dividends are another group that is missing the days of low rates.

For the telecom stocks, rates have pretty much acted like gravity!

After Friday’s Jackson Hole symposium, it’s clear that America’s top central bank (the U.S. Federal Reserve) remains open to further rate hikes from here. As such, the market was able to finish the day in the green.

It’s unclear just how high rates can go. Regardless, I think the pain in the telecoms is becoming overdone, as their dividend yields swell to unprecedented levels.

Who would have thought a blue-chip darling would yield at or around 7%?

In a low-rate world, shares of such a company would have been an absolute steal. In today’s environment, when you can get a risk-free yield of more than 5%, not so much.

Regardless, I view the swelling telecoms as dividend titans that must be bought if you’re looking for a way to “lock in” a sky-high yield. Rates on Treasury bills will always be on the move. Five years from now, you may not be able to get nearly as much on a risk-free investment. However, if you buy a high-yielding telecom stock today, odds are the dividend will grow even further.

While there are notable headwinds hitting the telecom stocks heavily, I do not doubt their ability to persevere through this high-rate environment. Their dividends are becoming a bigger commitment. But they can continue to maintain it while they look for other areas to trim and improve upon operating efficiencies.

BCE and Telus stock: Dividends too rich to ignore

BCE (TSX:BCE) and Telus (TSX:T) have both been making cuts to the workforce. And though the heavy weight of high rates won’t be going away anytime soon, I think there are other potentially discounted industry tailwinds that could help offset lingering rate-induced headwinds.

First, immigration to Canada could help fuel further subscriber growth. Indeed, BCE and Telus are two top dogs in the industry. And with some of the highest-quality networks and far-reaching marketing campaigns out there, I’d look for BCE and Telus to keep growing their mobile businesses at a solid rate.

Of course, a recession could weigh on such growth. However, in the long term, I think it will be tough to stop both firms in their tracks, as they continue to build out their impressive networks.

Second, 5G is still a great trend to bet on. It used to be a hot topic. Nowadays, 5G doesn’t get much, if any, attention from the talking heads. It’s all about artificial intelligence these days. Regardless, I believe the 5G trend will continue to be a secular tailwind that will help propel Canada’s top telecoms for years to come.

The Foolish bottom line

BCE stock yields 7.06%, while Telus yields 6.34%. Shares of both companies seem like great bets here if you seek heavy (but safe) yields. Between the two, I like Telus a bit more because BCE has its media segment weighing it down.

The post Income Investors: 2 Discounted Stocks With Growing Yields appeared first on The Motley Fool Canada.

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Fool contributor Joey Frenette has no position in any of the stocks mentioned. The Motley Fool recommends TELUS. The Motley Fool has a disclosure policy.