The latest leg of the market correction is providing Tax-Free Savings Account (TFSA) investors with an opportunity to buy top TSX dividend stocks at undervalued prices for portfolios focused on passive income.
Enbridge
Enbridge (TSX:ENB) trades for close to $53.50 at the time of writing compared to $59.50 last June when most energy stocks hit their 12-month highs after the price of West Texas Intermediate oil topped US$120 per barrel.
The pullback in the energy sector that occurred through the end of last year and into the start of 2023 made sense for producers as oil slipped back to below US$70.
However, the drop in the share prices of the energy infrastructure stocks appears overdone. Enbridge generates revenue by transporting oil, natural gas, gas liquids, and refined fuel. As long as demand remains strong for the commodities, the market price isn’t particularly a concern for Enbridge.
Oil and natural gas demand are expected to increase in the coming years as post-pandemic use rebounds. on the oil side, commuters are heading back to the office in larger numbers and for more days while airlines are scrambling to boost capacity to accommodate increased travel bookings. Natural gas has emerged as a key fuel for generating power to back up renewable energy sources that have limitations.
Enbridge transports 30% of the oil produced in Canada and the United States and about 20% of the natural gas used by Americans. In addition, the company has an oil export terminal in Texas and is part owner of a new liquified natural gas (LNG) facility being built on the coast of British Columbia. Renewable energy assets and natural gas distribution utilities round out the asset portfolio.
Enbridge expects adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to be at least $15.9 billion in 2023, up from $15.5 billion last year.
Enbridge raised the dividend by 3.2% for 2023, marking the 28th consecutive annual dividend hike. At the time of writing, the stock provides a 6.6% dividend yield.
CIBC
CIBC (TSX:CM) trades for close to $58 per share at the time of writing. This is down from $73 in April last year.
Investors sold bank stocks over the past 12 months amid rising fears that soaring interest rates designed to tame inflation will trigger a wave of loan defaults and a severe recession. That scenario hasn’t materialized yet and the Bank of Canada is predicting a soft landing for the economy.
Assuming the central bank is correct, CIBC stock looks cheap today. However, investors should be ready for more volatility and potential further downside in the stock if the Canadian economy falls into a deep recession and causes a wave of mortgage defaults. CIBC has a relatively large Canadian residential mortgage portfolio, so it would probably take a larger hit than its peers if the housing market tanks.
That being said, high immigration levels and a robust jobs market should put a floor under house prices, even if interest rates remain high for longer than expected.
Investors who buy CIBC stock at the current level can get a dividend yield of 5.85%.
The bottom line on top stocks for passive income
Enbridge and CIBC 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 deserve to be on your radar.
