The market correction hitting some sectors of the TSX this year is driving up dividend yields to attractive levels. Buying stocks on pullbacks takes courage and requires the patience to ride out additional turbulence, but the the rewards can be significant for self-directed Tax-Free Savings Account (TFSA) and Registered Retirement Savings Plan (RRSP) investors when the market recovers.
Bank of Montreal
Bank of Montreal (TSX:BMO) paid its first dividend in 1829. Investors have received a slice of the profits every year since that time. This is a great track record when you consider all the major economic downturns that have occurred over the past two centuries.
Bank of Montreal trades near $106 per share at the time of writing compared to the 12-month high of around $137. In early 2022, the stock was briefly above $150.
The steep decline is largely due to the big jump in interest rates in Canada and the United States. Investors are concerned that a severe recession could be on the way that will halt spending, drive up unemployment, and trigger a wave of loan defaults.
Bank of Montreal has large operations in both countries. The American business got a lot bigger earlier this year after Bank of Montreal closed its acquisition of Bank of the West. Investors might be concerned that Bank of Montreal paid too much for the California-based bank, but the long-term benefits should justify the purchase.
Investors who buy BMO stock at the current price can get a 5.5% dividend yield.
TC Energy
TC Energy (TSX:TRP) has increased its dividend annually for more than 20 years. Management expects the $34 billion capital program to generate enough revenue and cash flow to support targeted annual dividend growth of 3-5% over the next few years.
The stock trades close to $46 per share at the time of writing compared to more than $70 at the peak last year. The drop is likely due to market concern about rising debt costs caused by higher interest rates. TC Energy has also had issues with soaring costs on its Coastal GasLink pipeline project. Fortunately, Coastal GasLink is almost finished.
Investors who buy TRP stock at the current price can get a dividend yield of 8%.
BCE
BCE (TSX:BCE) has been a popular pick among retirees for decades. The drop in the share price from $65 in May to the current price near $51 caught a lot of people off guard, but the pullback gives existing investors a chance to add more stock to the portfolio at a discounted price. New investors can start their BCE position with a 7.5% dividend yield.
Higher borrowing costs will put a dent in profits this year, and BCE’s media group is seeing weakness in ad revenue across the traditional radio and television platforms. However, the core mobile and internet subscription businesses are performing well, and BCE expects total revenue to rise in 2023 compared to last year.
The bottom line on top Canadian dividend stocks
Bank of Montreal, TC Energy, and BCE pay attractive dividends that should continue to grow. If you have some cash to put to work in a TFSA or RRSP, these stocks look cheap today and deserve to be on your radar.
