The 2022 market correction is an opportunity for TFSA investors to buy top TSX dividend stocks at undervalued prices. This sets the portfolio up for a shot at attractive total returns when the TSX Index rebounds.
CIBC
CIBC (TSX: CM)(NYSE: CM) is Canada’s fifth-largest bank with a current market capitalization of $57 billion. The stock often trades at a discount to its larger peers due to the perceived higher risks. CIBC is more exposed to the Canadian residential housing market than the other banks on a relative basis and has a history of making big blunders.
Penalizing the stock for mistakes made by previous management teams doesn’t make much sense. Regarding the revenue stream, CIBC has taken positive steps in recent years to diversify its operations through acquisitions in the United States.
Bank stocks are down considerably in recent months due to recession fears. High inflation is eating into household savings, and the Bank of Canada’s interest rate hikes designed to tame inflation are driving up mortgage rates. In a worst-case scenario, the combination of rising prices and soaring borrowing costs could trigger a wave of mortgage defaults and result in a crash in the housing market. That would likely hit CIBC harder than the bigger banks.
Home sales and average prices are already starting to come down, but a plunge isn’t expected unless the jobs market weakens considerably. For the moment, there are more jobs available than people looking for work. Economists broadly expect a recession, if it occurs, to be mild and short.
CIBC stock trades near $63.50 per share at the time of writing compared to a 2022 high above $83.50. The pullback appears overdone, and investors can now pick up a 5.25% dividend yield. The board raised the payout by 10% late last year and increased it again when CIBC reported fiscal Q2 2022 results.
Despite the economic headwinds, CIBC is still projecting steady annual revenue growth in the next few years.
Enbridge
Enbridge (TSX: ENB)(NYSE: ENB) is a giant in the North American energy infrastructure industry with a unique network of oil and natural gas pipelines that moves 30% of the oil produced in Canada and the United States and 20% of the natural gas used in the American market. Enbridge’s natural gas utilities serve millions of Canadian customers. Renewable energy assets round out the portfolio.
Looking ahead, Enbridge sees opportunities in the domestic markets to capitalize on growing demand for hydrogen and carbon-capture hubs. Enbridge is also investing in assets to take advantage of growing international demand for Canadian and U.S. oil and natural gas. The company spent US$3 billion last year to buy an oil export platform and related infrastructure. Enbridge also recently announced plans to build two natural gas pipelines to bring the fuel to liquified natural gas (LNG) facilities on the American Gulf Coast.
Enbridge stock looks undervalued at the current price near $54.50 and provides an attractive 6.3% dividend yield.
The bottom line on top stocks to buy for total returns
CIBC and Enbridge look cheap today and offer high dividend yields on distributions that should continue to grow. If you have some cash to put to work in a TFSA focused on total returns, these stocks deserve to be on your radar.
