The market correction is giving investors a chance to buy top Canadian dividend stocks at cheap prices for self-directed Tax-Free Savings Account (TFSA) and Registered Retirement Savings Plan (RRSP) portfolios.
Buying stock on dips is a contrarian move and requires patience to ride out additional turbulence, but the strategy can boost yields on savings and deliver attractive long-term total returns as the market recovers.
BCE
BCE (TSX:BCE) is Canada’s largest communications company with wireless and wireline network infrastructure, providing Canadian commercial and residential clients with mobile, internet, TV, and security services.
The stock trades near $56 per share at the time of writing compared to $65 in May.
Profits are expected to drop in 2023 compared to last year due to higher borrowing costs and weaker advertising revenue in the media division. However, BCE’s core mobile and internet services businesses are performing well. Total revenue and free cash flow are predicted to increase in 2023. This should support another solid hike for 2024.
The pullback appears overdone, and investors can now get a 6.9% dividend yield from BCE stock. BCE increased its dividend by at least 5% in each of the past 15 years.
TC Energy
TC Energy (TSX:TRP) operates 93,000 km of natural gas pipelines and 650 billion cubic feet of natural gas storage capacity in Canada, the United States, and Mexico. The company also has power generation facilities and oil pipelines.
TC Energy trades for close to $48 at the time of writing. The stock was above $70 early last summer. Energy infrastructure stocks are down due to the surge in interest rates. Higher borrowing costs make capital developments more expensive. This can put a dent in profits and cash flow available for distributions.
TC Energy has struggled with rising construction costs on a major pipeline project. The original budget for the Coastal GasLink pipeline was about $6 billion. Current estimates put the total cost close to $14.5 billion. Fortunately, the pipeline is more than 90% complete.
TC Energy has a total capital program of $34 billion. Management is monetizing assets to shore up the balance sheet and access funds to finance the developments. TC Energy recently sold a 40% stake in some U.S. assets for $5.2 billion. The company also intends to spin off the oil pipeline business and is evaluating the potential sale of a minority stake in assets in western Canada.
Management still expects cash flow to grow enough to support planned dividend increases of 3-5% annually over the medium term. Investors who buy TRP stock at the current level can get a 7.75% dividend yield.
Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS) trades for less than $62 per share at the time of writing compared to $75 at this time last year. As with the energy infrastructure stocks, bank stocks are under pressure due to the jump in interest rates.
Investors are concerned that the Bank of Canada and the U.S. Federal Reserve will raise rates too high and keep them elevated for too long to get inflation back to the 2% target. If a deep recession occurs and unemployment spikes, a wave of commercial and residential borrowers could default on loans.
In Canada, residential mortgages are a big part of the loan book of Bank of Nova Scotia and its peers. If property prices crash, the banks could be in for a rough ride.
That being said, the general view among economists is for a mild and short recession. If that turns out to be the case, BNS stock looks oversold today. Investors who buy BNS stock at the current level can get a 6.9% dividend yield. The board increased the dividend when the bank announced the fiscal second-quarter 2023 results. Bank of Nova Scotia is scheduled to report fiscal third-quarter 2023 results on August 29.
The bottom line on top stocks to buy on a dip
BCE, TC Energy, and Bank of Nova Scotia pay attractive dividends that should continue to grow. If you have some cash to put to work, these stocks look undervalued today and deserve to be on your radar.
