Retirees and other Tax-Free Savings Account (TFSA) investors seeking passive income can now buy top TSX dividend stocks at undervalued prices. A market correction can be painful to watch, but it also provides opportunities to start new positions in great high-yield dividend stocks or add to existing holdings.
TC Energy
TC Energy (TSX:TRP) has increased its dividend annually for more than two decades and management plans to raise the distribution by at last 3% per year over the medium term. This is good guidance in the current era of economic uncertainty, but the stock remains out of favour after sliding considerably over the past year.
TRP shares trade near $54 at the time of writing compared to the 2022 high around $74. This is a big pullback for a company that generated solid results last year and continues to deliver decent revenue and earnings in 2023. Comparable earnings rose to $1.2 billion in the first quarter (Q1) 2023 compared to $1.1 billion in the same period last year. Management reaffirmed its 5-7% growth guidance for comparable earnings before interest, taxes, depreciation, and amortization (EBITDA).
TC Energy is working on a $34 billion secured capital program through 2028. As new assets are completed and go into service the jump in revenue and cash flow should support dividend increases. TC Energy is primarily focused on natural gas transmission, but the business also has oil pipelines and power-generation facilities. The 93,000 km of natural gas pipelines moves a quarter of the natural gas used in North America. Natural gas demand is expected to grow in the coming years, both in the domestic market and overseas.
TC Energy is building the Coastal GasLink pipeline that will move natural gas from producers in northeastern British Columbia to a new liquified natural gas (LNG) export facility being built on the coast of the province. The project is significantly over budget, which is one reason TRP stock has been under pressure, but the pipeline is nearing completion.
Investors who buy TRP shares at the current level can get a dividend yield of 6.8%.
CIBC
CIBC (TSX:CM) trades for close to $57.50 at the time of writing compared to more than $80 in early 2022. The pullback appears overdone, and investors can now get a 6.1% yield from CM stock.
Investors are avoiding banks stocks after the failure of a number of regional banks in the United States earlier this year. In addition, the steep rise in interest rates in The United States and Canada over the past 12 months is starting to put some borrowers in a tight spot. CIBC raised its provision for credit losses (PCL) in the most recent quarter. Loan defaults are expected to rise as higher interest rates combine with persistent inflation to impact business and household cash flows.
Despite the headwinds, CIBC remains very profitable and has a strong capital position to ride out some tough times. The board just announced a dividend increase, so management can’t be too worried about the profit outlook.
The bottom line on top stocks to buy for high yields
TC Energy and CIBC pay attractive dividends that should continue to grow. If you have some cash to put to work in a TFSA, these stocks deserve to be on your radar.
