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Now that the U.S. Federal Reserve is following in the Bank of Canada's footsteps on rate cuts, some income-conscious investors may view the rising rate trajectory as a sort of last call to snap up higher-yielding dividend stocks before the tailwind of low rates has a chance to rattle their share prices and, with that, compress their yields by a slight amount.
Without a doubt, several TSX dividend stocks have underperformed, especially relative to some of the “higher growth” segments of the market.
Despite the poor results, I think it's time for long-term investors to get moving on high-yield securities sooner rather than later. And while there could be a small pullback between now and the end of the year that could offer bond buyers the chance to pick up a bit more yield at a slightly lower price, I would say that such a drop may not be guaranteed, especially considering the Fed's massive 50 basis point (bp) rate cut, which effectively acts as a double cut in one fell swoop.
More rate cuts could be on the way: Dividend stocks could yield much less in 2025
Here in Canada, I think it would be unrealistic to expect 50 basis point cuts in one go (in many ways, it’s like a double dose of medicine to combat inflationary pressures), especially considering that the Bank of Canada cut rates long before the U.S. Federal Reserve did. In any case, it’s hard to imagine inflation coming back in full force, causing central banks to hit the pause button on rate cuts or, worse, opening the door to potential interest rate hikes in the near future.
Either way, I think the biggest risk for passive income investors is falling yields and rising valuations across the broad range of dividend options. In this article, we'll highlight two solid dividend stocks that could be great bets before the end of September.
Rogers Communications
Rogers Communications (TSX:RCI.B) isn’t exactly the kind of affordable telecom stock you’d consider if you’re looking for yield. As of this writing, the stock currently yields just 3.65%, much less than its major peers, some of which currently yield more than double that.
So why settle for a lower yield with a $29.3 billion telecom company? The firm appears to have more financial flexibility, which could imply more generous dividend growth over the next three to five years. In fact, the acquisition of Shaw Communications puts much more power in the hands of the telecom company.
Looking ahead, I think Rogers can generate more value as Canadian consumers demand more for their money. Indeed, inflation has been punishing and while it is easing, I expect the appetite for good deals to remain.
While Shaw joining forces with Rogers has been seen as a huge negative by many, given the amount of industry power it concentrates in the hands of a single company, I see Rogers passing on savings to consumers as it seeks to eliminate inefficiencies and improve service where possible.
In summary
With shares down more than 25% from 2022 highs, I'd say this is now a great buying opportunity for investors looking for a decent dividend yield along with above-average dividend growth prospects.
While Rogers hasn't been a benchmark for dividend growth in recent years, I believe it has the wherewithal to increase its payout at a mid- to high-single-digit annual rate. If Canada avoids a hard landing, perhaps RCI.B stock could prove to be one of the best dividend bargains on the market right now.