Bargain hunters are starting to move into oversold Canadian dividend stocks, but investors who missed the recent bounce can still get great deals and high yields for a buy-and-hold Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio.
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BCE
BCE (TSX:BCE) trades for close to $54 at the time of writing compared to $65 earlier this year.
Rising interest rates are largely to blame for the pullback, but the decline in the share price is likely overdone.
BCE is on track to generate growth in revenue and free cash flow in 2023 compared to last year, even as its media business faces some headwinds and rising borrowing costs will cut into profits. The core mobile and internet subscription businesses continue to perform well and should support steady results through next year, even if the economy goes into a recession.
BCE raised its dividend by at least 5% in each of the past 15 years. At the current share price, investors can get a 7.2% dividend yield.
Enbridge
Enbridge (TSX:ENB) has increased its dividend annually for nearly three decades. The energy infrastructure giant continues to drive growth through acquisitions and capital projects. Enbridge recently announced a US$14 billion deal to buy three natural gas utilities in the United States. These assets generate reliable rate-regulated revenue streams that will help support the dividend in the coming years. Enbridge also has a $24 billion capital program on the go to further enhance cash flow growth.
ENB stock trades near $45 at the time of writing compared to $59 at the high point last year. Investors who buy at the current level can get a 7.8% dividend yield.
CIBC
CIBC (TSX:CM) is down 15% in the past year and off 35% from the 2022 high. The pullback is more a sector issue than any specific problems with CIBC itself, although some investors might be concerned that CIBC has too much exposure to the Canadian residential housing market.
It is true that CIBC’s mortgage portfolio is large relative to the size of its market capitalization when compared to the other large Canadian banks. Rising interest rates are putting pressure on households with too much debt. Provisions for credit losses are increasing at CIBC, but the overall loan portfolio looks solid, and CIBC continues to generate good profits. The bank also has a decent capital cushion to ride out difficult times.
In the event there is a deep recession in 2024 or 2025 that causes a spike in unemployment, CIBC would likely come under more pressure than its peers, as investors would worry about risks to the housing market. At this point, economists widely expect a recession to be short and mild as the Bank of Canada works to get inflation under control.
CIBC raised its dividend earlier this year, so management appears to be comfortable with the profit outlook. Investors can currently get a 6.5% dividend yield.
CIBC is arguably a contrarian pick, but you get paid well to ride out some turbulence, and the upside potential is attractive on the next recovery.
The bottom line on top TSX dividend stocks
BCE, Enbridge, and CIBC pay good dividends that should continue to grow. If you have some cash to put to work in a self-directed TFSA or RRSP, these stocks look cheap today and deserve to be on your radar.
