A rally in the share prices of undervalued Canadian dividend stocks could be on the way after the recent interest rate cuts by the Bank of Canada. Investors seeking passive income and total returns are wondering which high-yield stocks are still on sale and good to buy for a self-directed portfolio.
BCE
BCE (TSX:BCE) is Canada’s largest communications company with wireless and wireline networks providing mobile, internet, and entertainment services to clients across the country. BCE spends billions of dollars every year to expand and update its infrastructure and uses debt to fund part of the capital program. The sharp rise in interest rates that occurred in 2022 and 2023 drove up borrowing costs and put pressure on profits.
At the same time, BCE’s media group has struggled with declining ad revenues. In order to position the business to meet financial targets, BCE reduced staff by more than 10% in the past year and closed or sold radio stations while also trimming television programming.
These headwinds led to a steep pullback in the stock. BCE fell from $74 in the spring of 2022 to below $43 in recent weeks.
At the current price near $46, investors can get an 8.6% dividend yield. BCE’s core mobile and internet subscription business remains strong, and restructuring efforts, along with lower borrowing costs, will reduce expenses in 2025. Ongoing volatility is expected in the near term, but the dividend should be safe, and you get paid well to wait for the recovery.
Enbridge
Enbridge (TSX:ENB) started its recovery late last year when market sentiment switched from fears of higher interest rates to expectations for rate cuts in both Canada and the United States in 2024. The American central bank is still waiting to see if inflation is firmly under control before it follows Canada’s rate-cut lead, but economists expect the U.S. Federal Reserve to start reducing rates in the next few months.
Enbridge is working on a $25 billion secured capital program. The company is also wrapping up its US$14 billion purchase of three natural gas utilities in the United States. Similar to BCE, Enbridge uses debt to fund part of its growth initiatives. Lower borrowing costs will improve profits and should free up more cash to cover dividend payments.
As new assets go into service, the company expects distributable cash flow to rise by 3% per year through 2026 and by 5% in 2027 and beyond. This should support ongoing dividend increases. Enbridge raised the dividend in each of the past 29 years.
Investors who buy ENB stock at the current price near $51 can get a 7.2% dividend yield. Enbridge traded as high as $59 in 2022 before the pullback, so there is still decent upside potential.
The bottom line on top stocks for passive income
BCE and Enbridge are leaders in their respective industries and have long track records of dividend growth. If you have some cash to put to work, these stocks look cheap at their current prices and deserve to be on your radar.
