Telus (TSX:T) and CIBC (TSX:CM) trade well below their 12-month highs, despite delivering solid results and raising their dividends. Investors seeking high-yield TSX stocks for passive income are wondering if Telus or CIBC is now undervalued and good to buy for self-directed income portfolio.
Telus
Telus generated total mobile and fixed line customer growth of 163,000 in the first three months of 2023. First-quarter (Q1) mobile phone net additions came in the best since 2010, and the fixed-line business had a record Q1. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) increased 11% compared to the same period last year.
This is a strong performance, and Telus expects full-year 2023 to deliver adjusted EBITDA growth of at least 9.5%. Free cash flow is targeted at $2 billion. As such, the drop in the share price from the 2022 high above $34 to the current price near $25 per share looks overdone.
Telus just increased its dividend for the 24th time since May 2011. Investors who buy the stock at the current level can get a dividend yield of 5.8%.
Telus is known primarily for its mobile, internet, TV, and security services, but the company also has growing subsidiaries that could become major contributors to revenue and cash flow in the coming years.
Telus Health got a lot bigger after its $2.3 billion acquisition of LifeWorks last year. LifeWorks provides digital solutions to businesses with employee benefit programs. This adds to the Telus Health digital services already assisting doctors, hospitals, and insurance firms.
Telus Agriculture and Consumer Goods initially focused on helping farmers make their businesses more efficient through the use of digital solutions. The business is now expanding to the entire distribution chain from the field or producer to store shelves.
Telus has a good track record of building innovative businesses. It’s other company, Telus International, went public in early 2021.
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CIBC
CIBC raised the dividend when the bank reported fiscal Q2 2023 results. The distribution increase should be a signal to investors that the board is comfortable with the revenue and earnings outlook, even if in the face of some economic headwinds.
Bank stocks have been under pressure, as investors worry that soaring interest rates in Canada and the United States could lead to a deep recession and trigger a wave of commercial and residential loan defaults. CIBC increased its provision for credit losses (PCL) in the latest quarterly report and some pain is expected in the coming 12-18 months.
However, CIBC remains very profitable, and the bank has a solid capital cushion to ride out some tough times. The bank had a common equity tier-one (CET1) ratio of 11.9% at the end of April. Regulators are increasing the minimum CET1 ratio to 11.5% for Canadian banks, so CIBC is already above that level.
Adjusted net income in fiscal Q2 2023 slipped 2% compared to the same period last year, but the bank still generated $1.6 billion in profits for the three-month period.
CIBC trades near $55.50 at the time of writing compared to more than $80 in early 2022. Investors who buy the dip can get a 6.25% dividend yield.
Is one a better bet?
Telus and CIBC pay attractive dividends that should continue to grow. Both stocks appear oversold at this point and deserve to be on your radar.
CIBC offers the higher yield rate now so I would probably make it the first choice for a portfolio purely focused on passive income. Telus might be more interesting for investors targeting total returns.
