2 Undervalued Stocks to Invest in This Month

These top Canadian dividend stocks are beginning to look oversold.

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The market correction over the past year is giving Canadian investors a chance to buy some top TSX dividend stocks at discounted prices for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP).

BCE

BCE (TSX:BCE) is Canada’s largest communications company with a current market capitalization near $55 billion. The business has changed considerably over the past two decades with the shift to mobile and internet services from landline phones. BCE has also become a major media player with acquisitions that include a TV network, specialty channels, radio stations, and interests in sports teams. Retail locations and data centres are part of the mix as well.

BCE stock trades below $61 per share at the time of writing compared to a high around $74 in the spring of 2022.

Rising interest rates are driving up borrowing costs for all companies. BCE uses debt as part of its funding strategy to cover the capital program, so the extra expenses on loans will eat into profits this year. Lower revenue in the media group could put added pressure on earnings. In fact, BCE expects adjusted earnings per share (EPS) to fall by 3-7% compared to 2022.

On the positive side, revenue growth is targeted at 1-5% and free cash flow is expected to increase by 2% to 10%. Strength in the mobile and internet subscription businesses should continue, even if the economy slips into a recession.

BCE typically raises its dividend by about 5% annually. Investors who buy the stock at the current level can pick up a 6.35% yield.

TD Bank

TD (TSX:TD) recently abandoned its planned US$13.4 billion all-cash takeover of First Horizon, a bank with more than 400 branches primarily located in the southeastern part of the United States. As a result, TD is sitting on a war chest of cash.

The excess capital means TD is likely the safest pick among the large Canadian banks right now if investors are worried that a major economic meltdown is on the way. The downside of holding too much cash is that the money isn’t driving revenue growth.

TD said it will not hit its previous EPS growth target of 7-10% in fiscal 2023 due to the cancelled purchase of First Horizon and worsening macroeconomic conditions. The dark cloud hanging over bank stocks could persist for some time, but contrarian investors might want to start nibbling on TD stock while it is out of favour.

TD has a great track record of dividend growth, and it will eventually find good uses for the extra cash. Share buybacks, a dividend increase, a bonus distribution, or even another acquisition are all possible in the next 12 months.

At the time of writing, TD trades near $77 per share. It was as high as $108 in early 2022. That’s decent upside potential when the market rebounds and investors who buy now can pick up a 5% dividend yield.

The bottom line on top stocks to buy today

Ongoing volatility should be expected, and more downside is certainly possible. However, BCE and TD already look cheap and pay attractive dividends that should continue to grow. If you have some cash to put to work, these stocks deserve to be on your radar.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. Fool contributor Andrew Walker owns shares of  BCE.

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