Canadian investors who missed the rally off the 2020 market crash have another chance to buy top TSX dividend stocks at discounted prices for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio. Buying dips is a contrarian move, but the strategy can boost yields and long-term total returns.
BCE
BCE (TSX:BCE) is Canada’s largest communications firm, with a current market capitalization of close to $48 billion. Being big has advantages in a sector that requires significant capital investments every year to expand and upgrade wireline and wireless networks. BCE spent roughly $5 billion in 2022 on initiatives that included the 5G mobile network and running fibre-optic lines to the buildings of its customers. These capital programs should drive revenue growth and will help protect BCE’s competitive position.
BCE stock trades for close to $52 per share at the time of writing compared to $65 in May and more than $73 at the high point in 2022.
The drop is largely due to rising interest rates that are driving up borrowing expenses. BCE uses debt as part of its funding strategy for the capital projects. As rates increase, the added debt costs eat into profits.
Financial guidance for 2023 calls for a 3-7% dip in adjusted earnings per share compared to last year, but BCE still expects revenue to increase by 1-5% and free cash flow growth is targeted at 2-10%.
BCE increased the dividend by at least 5% in each of the past 15 years. Investors who buy BCE stock at the current level can get a 7.4% dividend yield.
TC Energy
TC Energy (TSX:TRP) trades near $47.50 at the time of writing compared to more than $70 last year. Soaring interest rates are to blame for most of the decline. As with BCE, TC Energy grows by undertaking large capital projects. In the case of a pipeline, the asset can take years to complete before it goes into service and starts generating revenue. TC Energy’s Coastal GasLink project is a good example. The pipeline is almost finished, but pandemic delays, bad weather, soaring material costs and issues with contractors have all combined to double the project’s budget, which is now expected to be at least $14.5 billion.
Despite these challenges, TC Energy’s overall $34 billion capital program is projected to generate adequate revenue and cash flow growth in the coming years to support annual dividend increases of at least 3%. Investors who buy TRP stock at the current price can get a dividend yield of 7.8%. TC Energy has increased the distribution annually for more than two decades.
The bottom line on cheap dividend stocks to buy on a dip
Ongoing volatility should be expected until rate hikes end. However, BCE and TC Energy pay attractive dividends that should continue to grow. If you have some cash to put to work in a self-directed TFSA or RRSP, these stocks already look cheap and deserve to be on your radar.
