Dividend investors are finally getting an opportunity to buy some of the best companies in the TSX Index at reasonable prices.
Let’s take a look at three top Canadian stocks that might be interesting dividend picks today for your TFSA portfolio.
Canadian Natural Resources (TSX:CNQ)(NYSE:CNQ)
The steep drop in oil prices in recent weeks is taking a toll on Canadian energy stocks. Some of the players who are still stuck with balance sheets loaded with debt should be avoided, but others with strong cash positions and capital flexibility are starting to look attractive.
CNRL is one of those stocks.
The company has a balanced asset portfolio with gas and oil operations that cover the full spectrum of the energy segment. The offshore facilities can sell at global prices, and while some of the company’s Canadian oil production is impacted by the low Western Canadian Select price, CNRL is actually able to get West Texas Intermediate pricing for most of its output.
CNRL is also one of Canada’s largest natural gas producers. An early cold spell has driven natural gas prices soaring recently, and that should bode well for the company in the current quarter.
CNRL reported strong Q3 2018 results. Net earnings came in at $1.8 billion, supported by record adjusted funds flow of $2.8 billion. So far in 2018, the company has reduced net long-term debt by $2.9 billion and raised the dividend by 22%.
Going forward, the excess cash after covering capital expenditures and dividends will be split between share buybacks and debt reduction.
The stock is down to $36 per share from $49 in July. Investors who buy today can pick up a dividend yield of 3.7% with another solid payout increase likely coming in 2019.
BCE (TSX:BCE)(NYSE:BCE)
BCE is enjoying a nice recovery after a year-long slump that took the stock from $62 per share to below $51 at the end of October. Investors who’d bought the stock at the bottom are already sitting on some nice gains, and more upside could be on the way.
BCE reported solid Q3 results driven by strong subscriber gains in its wireless, internet, and TV segments. BCE is investing billions in its program to bring fibre directly to homes and businesses. The cash outlay is significant, but the end result is a competitive advantage that the other companies are unable to match.
Rising interest rates can be a headwind for dividend stocks, but in BCE’s case they come with a silver lining, as the company can also earn more on cash that is held in the pension fund. If rates continue to increase as expected, BCE’s pension could soon move to a surplus, according to a statement made by the CEO earlier this year.
BCE raises its dividend every year and has the power to hike prices when it decides it needs a bit of extra revenue. The stock still looks attractive after the recent bounce and provides a yield of 5.5%.
Bank of Montreal (TSX:BMO)(NYSE:BMO)
BMO has paid a dividend every year since 1829, and there is little reason to think the trend will change.
The company generates significant profits and offers investors a balanced exposure to the banking segment through the company’s personal and commercial banking, wealth management, and capital markets activities. The Canadian operations generate the most revenue, but BMO also has a large U.S. division that provides a nice hedge against any downturn in the Canadian economy. The American group can also provide a nice boost to the bottom line when the U.S. dollar climbs in value against its Canadian counterpart.
The stock is down from $108 per share in September to $98. At the current price, investors can pick up a yield of 3.9%.
The bottom line
Canadian Natural Resources, BCE, and BMO should all be solid buy-and-hold picks for a dividend-focused TFSA. The recent downturn in the stocks provides new investors with attractive dividend yields and decent share price upside potential in the coming years.
