As share prices and dividend yields are inversely related, a broader market selloff allows you to benefit from generous dividend payouts. Moreover, as stocks trade at a discount, you are also positioned to generate outsized gains via capital gains.
Additionally, you can hold these undervalued high-dividend stocks in a TFSA (Tax-Free Savings Account), as both dividends and capital gains are exempt from taxes.
Here are three such high-dividend TSX stocks I’d buy in my TFSA right now.
Slate Grocery REIT stock
Down 38% from all-time highs, Slate Grocery (TSX: SGR.UN) currently offers shareholders a tasty dividend yield of 10.7%. Several real estate investment trusts (REITs) are trailing the broader markets, as investors are worried about the higher cost of debt amid interest rate hikes.
Typically, REITs fuel their expansion plans via debt, which must be serviced by making regular interest payments. Valued at a market cap of $646 million, Slate Grocery ended the second quarter (Q2) with a total debt of $1.15 billion.
Slate Grocery owns and operates grocery-anchored real estate in the United States. It operates $2.4 billion of real estate infrastructure in major cities south of the border. Part of a recession-resistant industry, Slate Grocery’s strong credit tenants provide it with durable cash flows, allowing it to pay shareholders an annual dividend of $1.18 per share.
The TSX stock also trades at a discount of 45% to consensus price target estimates.
Enbridge stock
A popular dividend stock in Canada, Enbridge (TSX: ENB) is a diversified energy infrastructure company. It currently pays shareholders an annual dividend of $3.55 per share, translating to a yield of 7.8%.
Despite the cyclicality associated with the energy sector, Enbridge has increased its dividends by 10% annually in the last 28 years, which is exceptional. The company’s cash flows are predictable and resilient as they are tied to long-term contracts indexed to inflation.
Enbridge continues to expand its base of cash-generating assets, which should support dividend hikes in the future. Priced at 15 times forward earnings, ENB stock also trades at a discount of 30% to consensus estimates.
Canadian Natural Resources stock
The final TSX dividend stock on my list is Canadian Natural Resources (TSX: CNQ). The energy heavyweight has already created massive wealth for shareholders, returning over 2,000% in the last two decades after adjusting for dividends. Despite these outsized gains, CNQ stock offers you a dividend yield of 4%. Moreover, its dividends have risen by 23% annually in the last 23 years.
In Q2 of 2023, CNQ reported an adjusted funds flow of $2.7 billion. In the first seven months of 2023, it had already returned $4.3 billion to shareholders via dividends and share buybacks.
CNQ is optimistic about higher production volumes in the second half of 2023. Given that oil prices have surged upward recently, the company should also deliver higher cash flows in the next six months, providing it with enough room to support dividend hikes and reduce balance sheet debt.
Canadian Natural Resources has emphasized it would return 100% of free cash flow to shareholders once its net debt balance is below $10 billion. Its top-tier reserves and asset base provide CNQ with competitive capital efficiency and flexibility advantages.
