Hillcrest Energy Technologies. (CSE: HEAT)
From concept to commercialization, Hillcrest is investing in the development of energy solutions that will power a more sustainable and electrified future.
After a 30% rise over the past year, sectors may experience a pullback. Investors who missed this wave of growth are curious about which Canadian dividend stocks might be worth buying.
The first stock to consider is the Royal Bank of Canada (TSX: RY), which has seen its share price increase by over 55% in the last 12 months. As market sentiment shifted from concerns over further interest rate hikes to expectations of rate cuts, investors began buying back top bank stocks, leading to a strong rebound.
Interestingly, higher interest rates typically benefit banks by allowing them to earn greater net interest margins. However, the rapid rise in interest rates in Canada and the U.S. has also put pressure on highly leveraged borrowers. The Royal Bank of Canada and its peers have increased their provision for credit losses (PCL) to address the potential surge in defaults from clients struggling to keep up with rising interest expenses.
Now that the Bank of Canada and the Federal Reserve have started to lower interest rates, borrowers may find some relief. In fact, the Royal Bank of Canada has reported a decrease in PCL for the third quarter of fiscal year 2024 compared to the second quarter.
In terms of revenue, the Royal Bank completed its acquisition of HSBC Canada earlier this year. This acquisition contributed an increase of $412 million to the pre-provision, pre-tax earnings in the third quarter of the 2024 fiscal year. The bank also has sufficient remaining cash for additional acquisitions or to return more cash to shareholders through buybacks and dividend increases.
Next is TC Energy (TSX: TRP). After a continuous decline in 2023, the company’s stock price has risen by about 35% over the past year. In this case, lower interest rates have also played a role.
TC Energy funds its large growth plans through debt. The surge in borrowing costs during the second half of 2022 and the first three quarters of 2023 largely drove the stock down from $74 in June 2022 to $45. Expectations of interest rate cuts in the fall of last year attracted bargain hunters, and recent months’ rate cuts have sustained the upward trend. Lower borrowing costs will reduce debt expenses and can free up more cash for dividends or debt reduction.
TC Energy has also successfully completed the spin-off of its oil pipeline division, helping to unlock value and enable the company to advance its growth plans. TC Energy has increased its dividends every year for the past 24 years. As of this writing, the stock has a yield of 6%.
The dividends paid by Royal Bank and TC Energy are highly attractive and are expected to continue growing. If you have some cash to invest, these stocks are worth considering during the next market correction.
