The market correction is giving pensioners a chance to buy great TSX dividend stocks at cheap prices. Buying stocks on dips takes courage, but it increases the initial dividend yield and sets the investment up for good total returns as the stock price recovers.
CIBC
CIBC (TSX:CM) is Canada’s fifth-largest bank, with a current market capitalization near $52 billion. The stock trades below $58 per share at the time of writing compared to more than $80 at the 2022 peak.
The slide that occurred over the past 18 months is largely due to increased recession fears driven by the sharp rise in interest rates in Canada and the United States. Central banks are trying to get inflation back down to 2%, and they need to cool off the economy and loosen up the tight jobs market to achieve that goal.
Unfortunately, highly leveraged businesses and households end up being collateral damage as a result. If the economy slows down too much and unemployment surges, the banks could see a wave of loan defaults. CIBC has a large residential mortgage portfolio compared to its size, so the bank would likely take a bigger hit than its peers if things get really ugly.
That being said, CIBC has a solid capital position to ride out some tough times, and the current expectation among economists is for a soft landing as inflation drops. Record immigration is expected to put a floor under the property market in Canada, and consumers are still spending, despite the rise in living costs.
CIBC increased its dividend when the bank reported fiscal second-quarter 2023 results. The move suggests the board is comfortable with the earnings outlook. Investors who buy CM stock at the current level can get a 6% dividend yield.
Enbridge
Enbridge (TSX:ENB) trades near $48 per share at the time of writing compared to more than $59 last June. The drop looks overdone, given the solid financial performance over the past year and the outlook for cash flow growth.
Enbridge has a $17 billion capital program underway and is big enough that it can make acquisitions to drive additional growth. The legacy oil pipelines and natural gas transmission networks are key to the smooth operation of the U.S. and Canadian economies. Enbridge moves 30% of the oil produced in the two countries and 20% of the natural gas used by Americans.
Future growth will likely focus on renewable energy, carbon capture, and hydrogen, as well as exports of oil and liquified natural gas.
Enbridge increased its dividend in each of the past 28 years. The board raised the payout by 3.2% for 2023, and investors should see increases continue in the 3% range over the medium term. Investors who buy the stock at the current level can get a 7.3% dividend yield.
The bottom line on top stocks for passive income
CIBC and Enbridge pay attractive dividends that should continue to grow. If you have some cash to put to work in a portfolio focused on passive income, these stocks deserve to be on your radar.
