The extension of the market correction is driving down the share prices of reliable Canadian dividend stocks across multiple sectors. Retirees and other investors who use their Tax-Free Savings Account (TFSA) to generate passive income can take advantage of the pullback to get high yields today from some top TSX dividend payers.
BCE
BCE (TSX:BCE) has been a top pick among retirees for decades, and there is no reason for that to change. The company enjoys a wide competitive moat and continues to invest billions of dollars every year to upgrade its network infrastructure to ensure it defends its market position while giving customers the broadband communication services they need for work and entertainment.
BCE stock trades for less than $62 per share at the time of writing compared to $73 in April last year. The pullback has largely come as part of the broader market decline caused by rising recession fears. Investors are concerned that soaring interest rates designed to bring inflation under control by slowing down the economy could trigger a deep economic downturn.
High borrowing costs make development projects more expensive for BCE and other companies with large capital programs. At the same time, customers of BCE’s media group might continue to reduce spending on ads as the economy weakens. This is already evident in the latest quarterly results.
BCE acknowledges that these issues will lead to lower earnings this year. However, revenue and free cash flow are still projected to increase, supported by strength in the wireless and wireline network groups. This means investors should see another decent dividend hike in 2024. BCE raised the payout by at least 5% in each of the past 15 years.
Investors who buy BCE stock at the current level can get a 6.25% dividend yield.
CIBC
CIBC (TSX:CM) is the smallest of the Big Five Canadian banks with a current market capitalization near $51 billion. The bank also has the largest exposure to the Canadian residential housing market relative to its size.
Interest rate increases over the past year have pushed up mortgage costs. Variable-rate borrowers have already been hit and most property owners with fixed-rate mortgages are going to have to renew at much higher rates. For the moment, the housing market is holding up well as people are finding ways to cover their payment hikes.
However, if the economy tanks and unemployment jumps considerably, there could be a wave of defaults and panic selling of condos and homes. A recent report indicates that roughly half of all condo investors in the Greater Toronto Area are not receiving enough rent to cover their costs on the properties.
Concern about the impact of a potential recession is a big reason bank stocks are down over the past year. The recent string of bank failures in the United States has pushed share prices even lower.
Near-term volatility should be expected, but contrarian investors might want to take advantage of the pullback to add CIBC to their portfolios. The stock trades near $57 per share at the time of writing compared to $70 in early June last year. The company remains very profitable and has a strong capital position to ride out turbulence.
The board just increased the quarterly dividend by two cents to $0.87 per share, so management can’t be too concerned about the outlook for profits. Investors who buy CM stock at the current level can get a 6.1% dividend yield.
The bottom line on top stocks for passive income
BCE 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 look cheap today and deserve to be on your radar.
