Contrarian dividend investors are always on the lookout for good Canadian companies that have fallen out of favour. Ideally, these stocks have solid track records of paying reliable and growing distributions. No dividend is 100% safe, but there are opportunities in the TSX right now to get attractive yields from stocks that have paid steady dividends for decades.
TD Bank
TD (TSX:TD) trades near $85 per share at the time of writing compared to $108 at the peak in early 2022. The stock is already up about 15% from the June low and more gains could be on the way.
TD is working through some troubles in its American operations where U.S. regulators are investigating the company for not having adequate systems in place to detect and prevent money laundering. TD has set aside more than US$3 billion this year to cover potential fines. That’s a big hit that forced TD to monetize some of its holdings in Charles Schwab in order to maintain its capital position.
Management expects the total penalties to be near the level of the provisions already booked, so there appears to be a potential end in sight for these issues. TD recently announced a leadership change, as well, possibly to help turn the page.
Despite the U.S. challenges, TD remains very profitable. Falling interest rates should lead to a reduction in provisions for credit losses in the coming quarters, and the bank should eventually get back to normal operations in the American market.
Investors who buy TD stock at the current level can get a dividend yield of 4.8%.
BCE
BCE (TSX:BCE) trades for close to $47 at the time of writing. This is up from the 12-month low of around $43 but still way off the $74 the stock reached in 2022 before rising interest rates triggered a wave of selling in the communications sector.
BCE spends billions of dollars every year on capital projects. It is expensive to build mobile and wireline networks to provide services across a country as large as Canada. BCE uses debt to fund a good chunk of the capital program. As interest rates increase, the cost of borrowing rises. This cuts into profits and reduces cash flow that can be used for dividends or for reducing debt.
The Bank of Canada has cut interest rates by 0.75% in recent months. More reductions are expected through next year. This should help take some pressure off BCE. In addition, BCE recently announced a deal to sell its stake in Maple Leaf Sports and Entertainment for $4.7 billion. The deal is expected to close in 2025 and will enable BCE to shore up its balance sheet. This, along with extensive staff and media cuts put in place over the past year should help BCE hit its financial targets in 2025.
Headwinds persist for the media business and the Canadian communications sector as a whole with ongoing price wars and regulatory uncertainty. Investors shouldn’t expect to see a big rally in the near term, but the dividend should be safe, and you currently get paid a yield of 8.5% to wait for a rebound.
The bottom line on top dividend stocks
TD and BCE are good examples of TSX stocks that pay attractive dividends and still trade at discounted prices. If you have some cash to put to work in a contrarian buy-and-hold portfolio, these stocks deserve to be on your radar.
