The market pullback that occurred in recent weeks has driven down the share prices of many top Canadian dividend stocks to lows not seen since the 2020 market crash. Contrarian investors looking for passive income inside a self-directed Tax-Free Savings Account (TFSA) or total returns in a Registered Retirement Savings Plan (RRSP) now have an opportunity to get attractive yields from great Canadian dividend payers.
Enbridge
Enbridge (TSX:ENB) trades near $43.50 at the time of writing compared to $59 at the peak in 2022.
The drop in the share price is largely due to the steep rise in interest rates in Canada and the United States. An overheated economy and a very tight labour market have drive up inflation to risky levels. The Bank of Canada and the U.S. Federal Reserve are raising rates to slow down economic activity to try to get inflation back to 2%.
Higher interest rates make borrowing money for capital projects more expensive and drive up debt costs on existing variable-rate loans. Enbridge uses debt as part of its funding strategy, so there can be a negative impact on profits and cash available for distributions.
The drop in the share price, however, appears overdone. Enbridge generates steady revenue and distributable cash flow from its existing pipeline, utility, and renewable energy assets. A large capital program and new acquisitions, including a recent US$14 billion deal to buy three American natural gas utilities, will drive revenue and cash flow growth.
Enbridge increased the dividend in each of the past 28 years. Investors who buy the stock at the current price can get a dividend yield of 8.1%. This is a great return, even if the stock price doesn’t move significantly higher.
Telus
Telus (TSX:T) is another great Canadian dividend-growth stock that looks oversold. The shares trade for close to $22.00 at the time of writing compared to more than $34 at one point last year. As with Enbridge, rising interest rates are the main driver behind the plunge. Communications companies spend billions of dollars every year on network expansion and upgrades.
In addition, Telus had to reduce its 2023 financial guidance due to a drop in revenue at its Telus International subsidiary. The group is seeing weaker demand for its IT and multilingual call centre services that are provided to global firms.
Despite the headwinds, Telus still expects overall operating revenue to increase by at least 9.5% in 2023, supported by strength in the mobile and internet services divisions. These are essential services for residential and commercial clients, so the revenue stream should hold up well if the economy contracts.
Telus has increased the dividend annually for more than two decades. At the current share price, the distribution provides a yield of 6.5%.
The bottom line on top TSX dividend stocks
Enbridge and Telus pay attractive dividends that should continue to grow. If you have some cash to put to work in a portfolio targeting passive income and total returns, these stocks look cheap today and deserve to be on your radar.
