The sharp rise in interest rates by the Bank of Canada has caused a steep pullback in the share prices of many top Canadian dividend stocks. Contrarian investors seeking high yields and a shot at capital gains in a self-directed Registered Retirement Savings Plan (RRSP) are wondering which TSX dividend stocks might be oversold right now and good to buy before rate cuts arrive.
CIBC (TSX:CM) is down 17% in the past 12 months and off 37% from the 2022 high.
At the current share price below $52, the stock offers a 6.7% dividend yield and decent upside potential on a rebound in the bank sector.
Bank stocks are out of favour due to rising fears that the Bank of Canada will have to force a deep recession to get inflation back down to its 2% target. Economists say rate hikes normally take 12-18 months to fully work their way through the economy. There is a risk that the Bank of Canada will push rates too high and keep them elevated for too long. If economic activity crashes and unemployment spikes while rates are still at current levels, there could be a wave of commercial and household bankruptcies. In that scenario, the banks would be in for a rough ride.
For the moment, the consensus expectation is for a short and mild recession. Assuming that turns out to be how things unfold, CIBC stock is probably oversold today.
Enbridge (TSX:ENB) is down about 13% in 2023. Rising interest rates are largely responsible in this case, as well. Enbridge uses debt to fund part of its growth initiatives, so rising borrowing costs can cut into profits and reduce cash that is available for distributions.
The business is performing well this year, and investors should see revenue and cash flow grow to support ongoing dividend increases. Enbridge recently announced a US$14 billion deal to acquire three natural gas utilities in the United States. These assets generate reliable rate-regulated revenue and add opportunities for capital projects.
Enbridge raised the dividend in each of the past 28 years. Investors who buy the stock at the current price near $46 can get a 7.6% dividend yield.
Telus (TSX:T) cut 6,000 jobs this year to adjust to changing macroeconomic conditions. Two-thirds of the reduction in staff count is at the Telus International subsidiary that provides multi-lingual call centre and IT services to global clients. The division accounts for a relatively small part of overall revenue and earnings at Telus, but the weakening revenue picture at Telus International forced Telus to trim its 2023 guidance, but it still expects to deliver consolidated revenue growth of close to 10%.
The drop in the share price looks overdone. Telus stock trades for close to $24 at the time of writing. It was as high as $34 at one point last year. Solid third-quarter results from the core mobile and internet business lines drove up consolidated revenue by 7.2% compared to the same period last year. The Telus Health operations are also performing well and could deliver meaningful revenue and cash flow growth in the coming years.
Telus has increased the dividend annually for more than two decades. Investors who buy at the current level can get a 6.2% dividend yield.
The bottom line on top TSX dividend stocks
CIBC, Enbridge, and Telus pay attractive dividends that should continue to grow. If you have some cash to put to work in your RRSP, these stocks look cheap today and deserve to be on your radar.