Canadian savers can take advantage of the market correction in top TSX dividend stocks to secure attractive yields and position their self-directed Registered Retirement Saving Plan (RRSP) portfolio for potential capital gains on a recovery.
Telus
Telus (TSX:T) trades near $22.50 per share at the time of writing compared to more than $34 at the peak in 2022.
High interest rates are responsible for most of the decline. Telus uses debt as part of its funding strategy to finance its capital program. In 2023, Telus is on track to invest $2.6 billion on network upgrades and other projects. As borrowing costs increase, there can be a negative impact on earnings and cash available for distributions.
Telus is also seeing a drop in revenue at its Telus International subsidiary. The business provides global clients with IT and multi-lingual call centre services. Telus reduced its financial guidance for the year as a result of the challenges at TIXT, but the overall outlook remains positive.
Telus still expects consolidated revenue to increase by at least 9.5% in 2023, driven by strong performances in the core mobile and internet divisions. This should provide ongoing support for the dividend. Telus has increased the distribution annually for more than 20 years.
Investors who buy the stock at the current level can get a 6.4% dividend yield.
Enbridge
Enbridge (TSX:ENB) trades for close to $44 per share compared to $59 at the high point last year. Soaring interest rates are to blame for most of the decline. Enbridge uses debt to fund part of its growth initiatives. The current capital program is about $17 billion, and Enbridge is still making acquisitions.
The company’s latest deal is a US$14 billion purchase of three natural gas utilities in the United States. Once the deals are completed, Enbridge will be the largest natural gas utility in North America.
Enbridge’s oil pipelines remain important drivers of revenue. The company’s purchase of an oil export terminal in 2021 enables Enbridge to benefit from rising global demand for American oil. Enbridge is also investing in liquified natural gas (LNG) export infrastructure and continues to expand its renewable energy portfolio.
ENB stock looks oversold, given the outlook for revenue and cash flow growth supported by the new assets. The shares now offer a dividend yield of 8%.
CIBC
CIBC (TSX:CM) and its peers are getting pressured by high interest rates in a different way. The surge in borrowing costs is putting customers who are carrying too much debt in a tough spot. On the residential side, CIBC has a large relative exposure to the Canadian housing market and would potentially take a bigger hit than its peers if defaults soar and property prices plunge.
Provisions for credit losses are on the rise across the bank sector, and that trend could continue until the Bank of Canada and the U.S. Federal Reserve stop increasing interest rates.
Despite the headwinds, CIBC remains very profitable and even increased the dividend earlier this year. The bank has a solid capital cushion to ride out difficult times, so the dividend should be safe.
At the current level, CM stock appears priced for an economic situation that is more dire than what most economists predict will occur. CIBC trades below $51.50 at the time of writing compared to more than $80 in early 2022. Investors can now get a 6.8% dividend yield.
The bottom line on top TSX dividend stocks
Telus, Enbridge, and CIBC pay attractive dividends that should continue to grow. Ongoing turbulence is expected in the near term, but patient investors with cash to put to work in a self-directed RRSP targeting dividends should keep these stocks on their radar.
