The market pullback is giving TFSA investors focused on passive income a chance to buy some great dividend stocks at undervalued prices.
CIBC
CIBC (TSX: CM)(NYSE: CM) raised its dividend by 10% for fiscal 2022, and another generous increase is probably on the way for 2023.
The bank reported solid fiscal Q1 2022 results with adjusted net income coming in at $1.89 billion compared to $1.64 billion in the same period last year. That’s a gain of better than 15%.
Adjusted return on equity was 17.6% in the quarter compared to 17.2% in fiscal Q1 2021. That kind of ROE is rare for big banks outside of Canada, and the market might not fully appreciate the quality of the profit levels.
CIBC finished the quarter with a CET1 capital ratio of 12.2%. This is a measure of the bank’s financial ability to ride out difficult times. CIBC built up excess cash during the pandemic to ensure it could survive a wave of defaults. Fortunately, government aid programs enabled homeowners and businesses to make loan payments through the worst of the lockdowns.
CIBC’s strong cash position now gives it flexibility to make strategic accusations to drive growth and return capital to shareholders.
The stock trades near $141.50 per share at the time of writing compared to the 2022 high around $167.50. At the current multiple of 9.8 times trailing 12-month earnings, the stock looks cheap. TFSA investors who buy now can pick up a 4.5% dividend yield.
BCE
BCE (TSX: BCE)(NYSE: BCE) is Canada’s largest communications company with a current market capitalization of $62 billion. The firm provides essential mobile and internet services to residential and business customers across the country. People and companies are not going to cut their internet connections or cancel their wireless subscriptions, regardless of the state of the economy, so BCE has a communication revenue stream that is largely insulated from an economic downturn.
Mobile roaming charges should increase in the second half of 2022 as business and holiday travel increases. At the same time, BCE’s media division should see a continued rebound as companies spend more on advertising and the sports teams play in front of full arenas and stadiums.
BCE raised its dividend by 5% for 2022. It was the 14th consecutive annual increase of at least 5%. That’s a good track record for investors focused on reliable and growing passive income. BCE is targeting free cash flow growth of 2-10% in 2022, so another decent dividend hike is likely on the way next year.
BCE stock trades near $69 per share at the time of writing compared to the 2022 high of $74. Investors who buy the stock at this level can pick up a 5.3% dividend yield.
The bottom line on top stocks for passive income
CIBC and BCE pay generous dividends that should continue to grow. The stock prices could certainly move lower in the near term, but they already look cheap. Buy-and-hold investors searching for quality passive income inside a TFSA portfolio might want to consider adding CIBC and BCE to their holdings today.
