The market correction that has occurred over the past year in certain sectors of the TSX is giving investors who missed the bounce off the 2020 crash another chance to buy top Canadian blue-chip stocks at discounted prices.
Royal Bank
Royal Bank (TSX:RY) is Canada’s largest financial institution with a current market capitalization of about $165 billion. It is also among the top 10 globally, based on this metric.
Royal Bank is in the process buying HSBC Canada for $13.5 billion. The deal recently cleared a major hurdle after receiving approval from the Competition Bureau. Royal Bank hopes to close the purchase in the first part of 2024.
Royal Bank trades below $119 per share at the time of writing compared to nearly $140 in February.
The pullback is largely due to broader weakness in the banking sector that has occurred as a result of renewed rate hikes by the Bank of Canada and the U.S. Federal Reserve. Investors are worried that the central banks might hike rates too high and keep them elevated for too long in their battle to tame inflation.
If a severe recession occurs, the banks would likely see loan defaults surge.
Royal Bank is already setting more cash aside to cover potential bad loans, but the company remains very profitable, and Royal Bank has a solid capital cushion to ride out any turbulence. Buying Royal Bank on big dips has historically proven to be a savvy move for patient investors. The dividend offers a 4.6% yield at the current share price.
BCE
BCE (TSX:BCE) is Canada’s largest communications firm with wireless and wireline networks, delivering mobile, internet, TV, and security services across the country. BCE also has a media division that owns a television network, radio stations, specialty channels, digital platforms and interests in sports teams.
The media group is struggling with declining ad revenues in the non-digital assets. This led to the closure of some radio stations this year and a reduction in staff. Challenges in the media group are part of the reason the stock price is down this year, although most of the decline can be blamed on higher interest rates. BCE trades for close to $51.50 at the time of writing compared to $65 earlier this year.
BCE still expects to generate higher operating revenue and more free cash flow in 2023 compared to last year, supported by strength in the mobile and internet businesses. Based on the quality of the core revenue stream and BCE’s wide competitive moat, the decline in the share price appears overdone.
Investors who buy BCE stock at the current level can get a 7.5% dividend yield. The board has increased the distribution by at least 5% in each of the past 15 years.
The bottom line on TSX blue-chip stocks
Ongoing volatility should be expected in the near term, and additional weakness is possible. However, Royal Bank and BCE are industry leaders paying attractive dividends that should continue to grow. If you have some cash to put to work in a buy-and-hold Tax-Free Savings Account or Registered Retirement Savings Plan portfolio, these stocks look cheap today and deserve to be on your radar.
