TFSA investors have a chance to buy top TSX dividend stocks at undervalued prices for their self-directed portfolios focused on passive income.
Manulife Financial
Manulife (TSX:MFC)(NYSE:MFC) generated record profits in 2021. The company continues to improve its business mix and lower the risk profile after getting hammered during the Great Recession. Management closed a deal earlier this year that saw Manulife reinsure 75% of the legacy variable annuities business in the United States. Investors benefit from lower exposure to volatile equity markets and the move unlocked $2.4 billion in capital that is being used to buy back stock.
Manulife operates insurance, wealth management, and asset management businesses in Canada, the United States, and Asia. COVID-19 claims and lockdowns hit the Q1 2022 results. The market correction will likely impact the Q2 numbers, but the back half of 2022 and 2023 should be better, as morbidity and mortality claims due to COVID-19 drop and Manulife’s subsidiaries see better returns on cash positions due to rising interest rates.
The stock trades near $22.50 compared to the 2022 high around $28. Investors who buy at the current price can pick up a solid 5.8% dividend yield. Manulife raised the distribution by 18% late last year. Another generous increase should be on the way for 2023.
Suncor
Suncor (TSX:SU)(NYSE:SU) trades near $43.50 per share compared to the 2020 high above $53.50 it reached last month. A pullback in the price of oil is responsible for the drop, but the correction appears overdone, and Suncor stock now looks undervalued.
Suncor is generating strong profits with WTI oil at US$103 per barrel. The Q2 2022 results should be better than the solid performance the company reported in the first three months of the year. Suncor raised the dividend by 100% in late 2021 and increased the payout by another 12% when it announced the Q1 results. Management is paying down debt at a rapid pace and using excess cash to buy back up to 10% of the outstanding stock under the current share-repurchase plan. Investors could see another dividend increase in the coming months if WTI remains near US$100 per barrel.
Suncor’s refining and retail businesses took a hit during the pandemic, as lockdowns reduced fuel demand. In normal times, the downstream operations provide a good hedge against drops in the price of oil. This is why Suncor used to be a best-of-breed pick in the energy sector. Now that commuters are heading back to offices, and air travel is taking off again, the integrated business model should be attractive.
Suncor traded near $44 in early 2020 when WTI oil was $60 per barrel. Given the current oil price and the rebound in the refining and retail operations, the stock looks cheap today. Investors who buy Suncor at the current level can lock in a 4.3% dividend yield.
The bottom line on cheap dividend stocks to buy for passive income
Manulife and Suncor pay attractive dividends that should continue to grow. If you have some cash to put to work in a TFSA focused on passive income, these stocks look cheap today and deserve to be on your radar.
