Canadian dividend stocks are starting to catch a new tailwind, as markets sense the end of the Bank of Canada’s rate hikes. Investors seeking passive income from reliable TSX dividend stocks can still find deals that offer high yields.
CIBC (TSX:CM) trades for close to $51 per share at the time of writing. That’s up from the recent low of around $47, but still way down from the $83 the stock fetched in early 2022.
Bank stocks across the board have largely been under pressure amid rising fears that the Bank of Canada will have to cause a deep recession to get inflation back down to its 2% target. High interest rates drive up borrowing costs for households and businesses. This normally forces a cut in discretionary spending as more cash flow has to be allocated to loan payments and mortgage payments.
The central bank hopes to avoid a deep recession. Still, rate hikes take time to work their way through the economy, and investors have become increasingly concerned that the Bank of Canada has pushed rates too high and will have to keep them elevated for too long to get inflation under control.
CIBC is Canada’s fifth-largest bank by market capitalization, but it is arguably the most exposed to the Canadian housing market on a relative basis due to the size of its mortgage portfolio. If the economy crashes, unemployment surges, and house prices plunge, CIBC would likely take a larger hit than its peers.
That being said, the stock already appears priced for dire economic conditions, and that isn’t the consensus expectation among economists who are still broadly of the opinion that a short and mild recession is likely next year.
CIBC increased the dividend in 2023 and remains very profitable, even as its provision for credit losses has increased. The bank has built up a solid capital cushion to ride out tough times, so the dividend should be safe.
At the time of writing, investors can get a 6.8% dividend yield from CM stock.
BCE (TSX:BCE) spent roughly $5 billion in 2022 on capital initiatives that include the 5G mobile network and the extension of fibre-optic lines to the buildings of its customers. These programs are expensive, but the investments should drive long-term revenue growth and will help BCE defend its competitive position in the market.
BCE’s media business is struggling with falling advertising revenue in the radio and television segments. The digital platforms in the division are doing better, but it isn’t enough to overcome the trend of clients trimming marketing budgets to preserve cash flow or shifting their ad spending to alternatives such as search and social media.
The challenges for the media division could continue, but BCE’s mobile and internet subscription businesses bring in the most revenue and are performing well, even in a difficult economic environment. As a result, BCE still expects overall revenue to rise in 2023.
The board increased the dividend by at least 5% in each of the past 15 years. Investors can currently buy BCE stock for close to $53.50 per share compared to $65 earlier this year. The drop is likely overdone, and the yield is now 7.2%.
The bottom line on high-yield dividend stocks
CIBC and BCE pay attractive dividends that should continue to grow. If you have some cash to put to work, these stocks look cheap today and deserve to be on your radar.