The latest pullback in the stock market is giving investors a chance to buy great TSX dividend stocks at undervalued prices. Yields are at attractive levels for portfolios focused on passive income, and investors get a shot at decent capital gains when the market rebounds.
CIBC
CIBC (TSX:CM) is Canada’s fifth-largest bank with a current market capitalization near $51 billion. The stock trades for close to $57 per share at the time of writing compared to more than $70 in early June last year.
CIBC just reported solid fiscal second-quarter (Q2) 2023 results, despite the increased stress being put on borrowers by the surge in interest rates over the past year. The bank generated adjusted net income of $1.63 billion in the quarter compared to $1.65 billion in the same period last year.
An increase in revenue was offset by higher provisions for credit losses (PCL). All the big Canadian banks are setting more cash aside to cover potential loan losses. CIBC reported PCL of $438 million in the quarter, up $135 million from fiscal Q1 2022.
The bank finished the quarter with a common equity tier-one (CET1) ratio of 11.9%. This is above the minimum level required by the government and should be adequate to get CIBC through turbulent economic conditions.
CIBC announced an increase in the quarterly dividend from $0.85 per share to $0.87 per share. At the time of writing, the annualized distribution provides a 6.1% dividend yield.
Ongoing volatility should be expected in the bank sector in the near term, but CIBC remains very profitable and the dividend pays you well to wait for the rebound.
Telus
Telus (TSX:T) is a major player in the Canadian communications industry. The company’s wireless and wireline network infrastructure delivers mobile, internet, TV and security services to customers across the country. Telus doesn’t have a media division. However, the company is building interesting businesses in other segments. Telus Health is a global provider of digital health and benefits solutions. Telus Agriculture and Consumer Goods uses digital solutions to help farmers make their businesses more efficient while also improving the entire distribution chain from producers to store shelves.
Telus stock trades near $26 per share at the time of writing. It was above $34 at the high point last year. The company generated solid results over the past 12 months and while high interest rates are pushing up borrowing costs, Telus is still targeting healthy profits. Free cash flow is expected to be $2 billion this year.
The board has increased the dividend annually for more than two decades and normally raises the payout by at least 7% per year. At the time of writing, investors can get a 5.5% dividend yield.
Suncor
Suncor (TSX:SU) upset investors when it cut the dividend by 55% in the early days of the pandemic. It was a surprise move considering the company had always maintained the distribution in previous downturns in the oil market.
The rebound in the price of oil in 2021 and 2022 helped Suncor pay down debt and the dividend has since rebounded to a new all-time high. It is unlikely the company will cut the payout again, even in the next down cycle.
Investors are still shunning SU stock in favour of its oil sands peers, but this could be a contrarian opportunity. Suncor’s balance sheet is in good shape and the company is aggressively buying back shares with excess cash. The new chief executive officer is expected to shake things up to boost investor returns, so upside should be on the way, especially if the price of oil returns to US$100 per barrel.
Fuel demand continues to recover and Suncor’s integrated business structure with production, refining, and retail operations should make the stock more attractive in the next few years. At the time of writing, investors can buy Suncor stock for less than $40 per share and get a 5.3% dividend yield. Suncor traded as high as $53 in June last year.
The bottom line on top TSX dividend stocks
CIBC, Telus, and Suncor pay attractive dividends that should continue to grow. If you have some cash to put to work in a portfolio focused on passive income, these stocks deserve to be on your radar.
