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Passive income investors have plenty of opportunities with the many dividend-beaten stocks that have fallen from glory over the past few months. Indeed, rate hikes and geopolitical turmoil concentrated selling in mostly tech stocks, but many value plays were also dragged lower. Some of the cheap dividend stocks have become even cheaper and their dividend yields have risen accordingly. In this article, we’ll take a closer look at a top dividend play that topped my watch list in mid-April.
The US Federal Reserve and the Bank of Canada are poised to raise rates after resisting for nearly two years. Inflation has gotten too hot and the economy may need to take a step back after advancing three steps since the stock market bottomed in March 2020. This hawkish central bank pivot has some experts fearing a recession may strikes, making a soft landing difficult, given the lack of tools the Fed has now that it has decided to tighten its grip.
Soaring rates: why the landing could be less soft than expected
Undoubtedly, the Fed has been dovish for some time. While the many risks would have led central banks to rethink rate hikes, inflation leaves them no choice. In Canada, inflation is hot at around 5%. In the United States, it got out of control at almost 8%. If the consumer price index hits double digits, the 10-year Treasury could break above the 3% mark and equity markets could risk falling below the March 2022 low.
Either way, it looks like the stage isn’t set for a big tech rally just yet, with big tech stocks taking yet another jab to the chin on Monday. Eventually, growth stocks will rebound again, and when they do, it will be a vicious tear to the upside. Still, chasing tears or reaching out to catch knives falling on dips doesn’t seem like a great strategy for novice investors who don’t have a game plan. Depleting your cash reserves by buying multi-month declines is a real risk.
That’s why snacking on the way down is the best way to go. Unfortunately, many are likely to get excited chasing such names after a big leap is already in the rear sight. This is why discipline among investors is so important, as not all bear market corrections or dips are followed by 2020-style V-shaped recoveries. On the contrary, such recoveries are not even the worst scenarios. likely, given that many high-tech speculative games aren’t expected to peak in this decade.
Personally, passive income stocks stand out as better downside buys. With a preference for strong balance sheets and resilient operating cash flows, one can ensure the stability of a stock’s payout.
Algonquin Power: dividends and defense
Currently, Algonquin Power & Utilities (TSX:AQN)(NYSE:AQN) stands out as a intriguing trading in the passive income space. The green power producer is fully invested in growth, but it has an excellent, stable, cash-flow-generating utility business to build on. Indeed, the company seems to be getting the best of both worlds. Although the company’s forward-looking renewable energy projects are expensive, the recent spike in oil prices should only give green energy players a boost.
As Algonquin shares try to break out of the correction, I wouldn’t hesitate to buy with modest strength, even if a recession is on the way. Many experts believe oil prices will stay high for longer. If that ends up being the case, look for a second bullish push in green power plays like Algonquin.
At the time of writing, the stock is posting a safe and growing dividend yield of 4.3% after fluctuating in a two-year consolidation channel.