The market correction in TSX dividend stocks is giving retirees seeking passive income and other investors targeting total returns a chance to buy great Canadian dividend-growth stocks at discounted prices for their self-directed Tax-Free Savings Account (TFSA) and Registered Retirement Savings Plan (RRSP) portfolios.
Buying stocks on dips is a contrarian move, but it can boost yields and set investors up for a shot at nice capital gains on the rebound.
GIC or dividend stock?
Income investors can now get attractive yields from Guaranteed Investment Certificates (GICs), and that is likely luring funds away from quality dividend stocks that have safe payouts, but still carry risk. The smaller the margin gets between GIC rates and safe dividend yields, the more likely it is that money will move, and drive down share prices.
However, GIC rates likely won’t stay at 5% for the long term. In fact, they might have already peaked. This is why it makes sense to consider oversold dividend-growth stocks that now offer historically high yields.
BCE
BCE (TSX:BCE) is viewed as one of the safest dividend stocks in the TSX due to its solid market position, reliable revenue stream from essential services, and a strong balance sheet that enables the company to make the capital investments needed to drive revenue growth and protect its competitive moat.
BCE trades near $56 at the time of writing compared to the 12-month high of $66 and more than $70 at the 2022 peak.
The steep slide in the share price since early May appears overdone. BCE expects revenue and free cash flow to increase in 2023, even as it faces some headwinds. The dividend is up by at least 5% per year over the past 15 years. Investors who buy BCE stock at the current level can get a 6.9% dividend yield.
Enbridge
Enbridge (TSX:ENB) raised its dividend in each of the past 28 years. The current $17 billion capital program and Enbridge’s ability to make strategic acquisitions to drive additional growth should support ongoing distribution hikes.
Management expects adjusted earnings per share (EPS) and distributable cash flow (DCF) to grow at a slow but steady pace over the medium term. At the very least, the distribution should be safe. Investors who buy Enbridge near the current share price of $48 can pick up a 7.4% dividend yield.
CIBC
CIBC (TSX:CM) is another stock that looks oversold right now and offers a good dividend. The bank raised the payout when it reported fiscal second-quarter 2023 results, so there doesn’t appear to be much concern at the executive level about the revenue and profit outlook.
Banks, including CIBC, are setting aside more money to cover potential loan losses, and that trend could pick up steam in the coming quarters, but CIBC’s overall loan book looks solid, and the company has a strong capital position to help it ride out some market turbulence.
At the time of writing, CIBC trades below $56.50 per share compared to more than $80 in early 2022. Investors who buy at the current price can get a 6.2% dividend yield.
The bottom line on top TSX dividend stocks
Ongoing volatility should be expected, and additional downside is certainly possible. However, BCE, Enbridge, and CIBC already look cheap and they pay attractive dividends that should continue to grow. If you have some cash to put to work in a TFSA or RRSP, these stocks deserve to be on your radar.
