The market correction in bank and telecom stocks is giving self-directed Registered Retirement Savings Plan (RRSP) investors a chance to buy top TSX dividend stocks at discounted prices. Buying great stocks on dips takes courage and a contrarian approach, but the strategy can help boost total returns over time.
CIBC
CIBC (TSX:CM) is Canada’s fifth-largest bank with a market capitalization near $51 billion. The stock trades close to $56 per share at the time of writing. That’s off more than 20% over the past 12 months.
CIBC is down due to the broader pullback that has occurred in shares of Canadian bank stocks over the past year. The more recent hit occurred in March as a result of failures of regional banks in the United States.
In Canada, investors are concerned the steep rise in interest rates put in place by the Bank of Canada will eventually trigger a major selloff in the property market as owners of multiple homes and condos get squeezed by negative cash flow on their holdings. The second phase of the housing meltdown could come, as over-leveraged families are forced to default on payments. As long as the jobs market holds up, this shouldn’t occur, but a sharp rise in unemployment will make it difficult for a segment of property owners to cover all their bills.
CIBC has a large Canadian residential mortgage portfolio relative to its size. If there is a crash in the housing market, CIBC will likely take a bigger hit than its peers.
On the positive side, things would have to get really bad for all that to happen. For the moment, the employment market is holding up well and the Bank of Canada is predicting a soft landing for the economy.
CIBC remains very profitable, has a solid capital position, and pays an attractive dividend that should be safe. Investors who buy the stock at the current level can get a 6% dividend yield.
Telus
Telus (TSX:T) trades for close to $28.50 per share at the time of writing compared to more than $34 at the peak last year.
The drop appears overdone considering the solid 2022 results the company delivered and the essential nature of the core services that drive the bulk of the company’s revenue. Cash flow from operations rose 10% in 2022 and free cash flow jumped 64% to almost $1.3 billion.
Telus expects operating revenues in 2023 to grow at least 11% and free cash flow is expected to come in at close to $2 billion. This should support an annualized dividend increase in the 7-10% range for 2024.
Telus completed the largest part of its copper-to-fibre transition last year. The company is still spending roughly $2.6 billion in 2023 on projects, including the expansion of the 5G network, but overall capital outlays are going to be down considerably. That helps free up more cash to cover rising borrowing costs and to support dividend growth.
At the time of writing, Telus stock provides a 4.9% dividend yield.
The bottom line on top stocks for RRSP investors
Ongoing volatility should be expected and a dip back to 12-month lows is certainly possible in these stocks. However, CIBC and Telus pay attractive dividends right now and should deliver decent capital gains over the long run.
If you have some cash to put to work in a self-directed RRSP, these stocks deserve to be on your radar.
