A market correction can be scary, but it also gives investors a chance to buy great TSX dividend stocks at discounted prices for a Tax-Free Savings Account (TFSA) focused on generating decent dividends and total returns.
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BCE
BCE (TSX:BCE) trades for close to $64 today compared to the 2022 high around $74. The stock already deserves to be on your buy list at this level but would be more attractive on a pullback to $60. BCE dipped as low as $58 during the correction last fall.
The business generates reliable revenue from its mobile and internet subscription services. These are essential for both residential and commercial clients, so the stock should be a solid holding to ride out an economic downturn.
That being said, BCE isn’t immune to a recession. The media business typically sees ad revenue slide during tough times as clients reduce marketing budgets to protect cash flow. Phone sales can also slow down, as people decide to keep older models for longer.
Earnings will slip due to higher borrowing costs this year, but BCE still expects revenue and free cash flow to grow. That should support another dividend hike in 2024.
Investors can currently get a 6% dividend yield and look to add to the position on additional weakness.
CIBC
CIBC (TSX:CM) is Canada’s fifth-largest bank with a current market capitalization near $50 billion. The stock trades for close to $55.50 per share at the time of writing compared to more than $80 in early 2022.
The choppy decline over the past year has occurred as part of a broader pullback in bank stocks rather than any specific issue at the bank, although CIBC is considered to be a riskier holding than some of its peers due to its relatively large residential Canadian mortgage portfolio.
CIBC aggressively expanded its housing lending in the past decade. That proved to be a very profitable move, as property prices soared on the back of low interest rates. Investors are increasingly concerned, however, that the steep increase in rates over the past 12 months will eventually trigger a recession that could result in a surge in unemployment. Families are already struggling with higher food prices and increased mortgage payments. A wave of job losses could drive up bankruptcies and mortgage defaults.
In the worst-case scenario, panic selling could send home prices plunging to the point where the banks get stuck with a basket of properties that are worth less than the money owed on the mortgages.
For the moment, the jobs market remains strong, and banks are working with clients to help them ride out the period of higher interest rates. Record immigration should support property demand, even if a wave of condos and homes hits the market.
As long as there is a soft landing for the economy and rates start to decline in the next 12-18 months, CIBC and the other banks shouldn’t see a material impact.
Ongoing volatility is expected in the near term and more downside could be on the way for bank stocks. That being said, CIBC’s dividend should be safe and offers a 6.1% yield today.
The bottom line on top dividend stocks to buy on a dip
BCE and CIBC are top TSX dividend stocks with attractive yields. If you have some TFSA cash to put to work, these stocks deserve to be on your radar when the market corrects.
