Rising interest rates, a tightening of money supply, and high inflation are shrinking Canadians’ wallets. On the bright side, this environment is also depressing stock valuations. Here’s a good mix of top TSX stocks that can make you tonnes of money. Some even offer highly attractive income now to help you immediately combat high inflation.
BCE stock
Risk-averse investors can look to buying blue-chip dividend stocks like BCE (TSX: BCE), which is a good option in this high inflationary environment. Many Canadians feel their belts tightening.
The best GIC guarantees a rate of 4.85% and security of your principal. BCE is the largest Canadian telecom with a massive customer base. Its dividend yield of 6.3% is attractive against a GIC’s return. If you park $5,000 in BCE stock, you can make about $315.50 a year. More importantly, you can expect BCE to increase its dividend over time. As it does that, you can also enjoy some price appreciation.
Indeed, the telecom has solid track record of raising its dividend every year since 2009. For reference, its 10-year dividend-growth rate (DGR) is 5.5%. Over the next few years, it should have the cash flow to continue increasing its dividend by about 5%. Normally, the Bank of Canada controls inflation in the 1-3% range. So, BCE’s dividend growth would be plenty to help you maintain your purchasing power in the long run.
CIBC stock
If you like BCE’s big dividend, you might also like Canadian Imperial Bank of Commerce (TSX: CM), which also pays a dividend yield that’s higher than a GIC’s. CIBC is another blue-chip TSX stock that has an even longer history of paying safe dividends.
Specifically, this year marks the 154th year that CIBC has paid dividends. The macro environment of slower expected loan growth due to rising interest rates have depressed CIBC’s stock valuation to about eight times earnings. At $59.68 per share at writing, it’s undervalued by about 20% to the 12-month consensus price target across 16 analysts. Its yield of approximately 5.6% is well worth your consideration.
You can also expect dividend increases from the solid bank. For reference, CIBC’s 10-year earnings-per-share growth rate is about 7%. Healthy earnings growth will lead to price appreciation and dividend increases that you can count on.
Open Text stock
You can potentially get greater long-term price appreciation from taking a position in Open Text (TSX: OTEX). The profitable tech stock now trades at a substantial value — a discount of 40% — from its long-term normal valuation of about 14 times earnings.
It announced a major acquisition in U.K.-based Micro Focus involving an enterprise value of US$6 billion. This large acquisition, which Open Text is funding with approximately US$4.6 billion in new debt financing, came at a time when interest rates are rising.
Open Text has a track record of using mergers and acquisitions as a core pillar of growth. As it pays down its debt over the next two years with significant cash flow generation and shows results from the acquisition, it would be able to trade at much higher levels.
The Canadian Dividend Aristocrat offers a decent yield of 3.6% for starters. For reference, its five-year DGR is 13.6%.
The Foolish investor takeaway
It’s easy for investors to be caught up in the present, gloomy environment of the stock market that seem to be falling lower month after month. If you take the Foolish investing approach that’s focused on long-term wealth creation, you can expect your diversified stock portfolio to recover and climb to new heights, say, five years later. Today’s stock prices would, in hindsight, be a super bargain.
