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Yes! Canadian Dividend Stocks are in a Correction!

Yes! Canadian Dividend Stocks are in a Correction!  If 2017 was a banner year for stock markets, the trend doesn’t seem likely to continue in 2018.  Make no mistake about it, those precious dividend stocks that have done so well for us are in full fledged correction mode now.  I think we’ll continue to see this play out as interest rates normalize.

Will interest rates hit 5 or 6 percent?  Maybe not any time soon, but if they go to 3 or 4 percent where will that leave dividend portfolios that have utility, pipeline and telcos as their core components?

A Snapshot of Key Canadian Dividend Stocks

So far, a lot of my dividend stocks are down anywhere from 6-12 percent in the past 2 months.  Here’s a snapshot:

Bell Canada (BCE) in the $57 range (was trading above $60)

Fortis (FTS) in the $42 range (was trading above $46)

Enbridge (ENB) in the $45 range (was trading above $50)

TransCanada Corp dropped below $56 for the first time since 2016!

This is a market in correction mode.  Even as the TSX sits near its all-time high, these sectors and stocks are massively underperforming the market.

Rising Interest Rates to Blame

The main reason, I think, has to do with interest rates.  Not so much the piddly 0.25% increases from the Bank of Canada that we got twice last year.  Remember, the 2 interest rate increases in 2017 only brought the rate back up to 1%.  This is where it was back in 2010 until the oil collapse of 2014.

What’s really changed is the “perception” among bankers that the economy is strong so rates will continue to rise.

5-year mortgage rates among the big banks are sitting at about 5%, while shorter term 2, 3 and 4 year are around the 3.5%.

The financials are still holding up relatively well.  But if NAFTA ends I expect Scotiabank (BNS) to be disproportionately hit as it has a large presence in Canada, Mexico and Latin America more generally.

Overall, I think we’re headed lower, so if you may want to keep some cash on the sidelines to buy on some bigger dips.  Don’t get me wrong, these dividend stocks are still great companies and I continue to buy them each month (see for example my dividend income reports).  But I wouldn’t back the truck up so to speak right now.

The bond market is also selling off on the expectation of higher interest rates.  So the pain is being felt by everyone, not just stock investors.

Overall, I think that if you’re a long term investor these sell offs provide opportunities to build our investments and passive income.  Canadian dividend stocks have proven to be great long term investments for the patient investor.

What do you guys think about this sell off in dividend stocks?

Disclaimer: I own all the stocks mentioned in this post and this piece is simply my own opinion piece do not make any financial decisions without consulting a financial advisor.