Bargain hunters entered the market in recent weeks to scoop up undervalued Canadian dividend stocks on the hopes that rate hikes by the Bank of Canada have finally peaked. Self-directed Registered Retirement Savings Plan (RRSP) investors who remained on the sidelines still have a chance to buy some great TSX dividend stocks at discounted prices before they extend their rebound.
Enbridge
Enbridge (TSX:ENB) is a giant in the North American energy infrastructure sector with a current market capitalization near $99 billion. The stock trades close to $46.50 at the time of writing compared to a high of around $59 last year.
The drop is mostly due to rising interest rates, but the pullback appears overdone. Enbridge is on track to hit its financial guidance for 2023, and the combination of recent acquisitions and the $24 billion capital program should drive ongoing revenue and cash flow growth to support dividend increases.
Enbridge raised the distribution in each of the past 28 years. At the time of writing, the stock offers a yield of 7.6%.
CIBC
CIBC (TSX:CM) is the fifth-largest Canadian bank by market capitalization, but it has the highest relative exposure to the Canadian residential housing market among the big banks based on the size of its mortgage portfolio.
This makes CIBC more likely to take a big hit if the economy goes into a major recession and house prices crash as a result of a wave of listings caused by household bankruptcies and mortgage defaults. Fortunately, economists broadly expect the economy to go through a short and mild recession, as the Bank of Canada’s rate hikes work through the system to cool off the economy and bring inflation back down to the 2% target.
High levels of immigration and a tight labour market should prop up demand for housing and mitigate the impact of a softening economy. Provisions for credit losses are increasing at CIBC, but the overall loan book remains in good shape.
CIBC has a solid capital cushion to help it ride out some challenging times. The bank continues to be very profitable, and the board even increased the dividend earlier this year, despite the challenging economic environment.
CIBC is probably priced for a more dire economic situation than is likely to arrive based on the current outlook. The stock trades for close to $52 per share at the time of writing compared to more than $80 at the high point last year. Investors who buy CM stock at the current level can get a 6.7% dividend yield.
The bottom line on top TSX dividend stocks
Enbridge and CIBC pay attractive dividends that should continue to grow. If you have some cash to put to work in a self-directed RRSP, these stocks still look cheap and deserve to be on your radar.
