Bargain hunters have started moving back into oversold Canadian dividend stocks in recent weeks. Investors who missed the bounce are wondering which top TSX dividend stocks are still undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) focused on passive income.
Enbridge
Enbridge (TSX:ENB) increased its dividend in each of the past 28 years. This is the kind of track record investors like to see when searching for high-yield dividend stocks to add to their portfolios.
Enbridge’s share price pulled back from a 2022 high of around $59 to $43 last month. At the time of writing, ENB stock is close to $46.
The drop is primarily due to rising interest rates. Higher borrowing costs can put a dent in earnings and reduce cash available for distributions. Enbridge uses debt to finance part of its capital program and acquisitions.
The Bank of Canada is likely close to ending its string of rate hikes. In fact, economists are starting to predict rate cuts at some point next year. As soon as the Bank of Canada signals its intention to reduce interest rates, Enbridge’s share price could move meaningfully higher.
The company is on track to hit its financial targets this year. Recent acquisitions, along with a robust capital program, should drive ongoing revenue growth and cash flow growth to support the dividend. Investors who buy ENB stock at the current level can get a 7.7% dividend yield.
Fortis
Fortis (TSX:FTS) raised its dividend annually for the past 50 years, and the board intends to boost the payout by at least 4% per year through 2028. This is good guidance in uncertain economic times. The reliability of the dividend makes Fortis a good stock to buy for retirees and other investors seeking passive income.
Fortis gets nearly all of its revenue from rate-regulated utilities. These include power-generation facilities, electric transmission networks, and natural gas distribution businesses. Fortis grows through a combination of acquisitions and internal projects. The current $25 billion capital program is expected to significantly boost the rate base over the next five years. That should support the dividend-growth plan.
Fortis trades near $56 compared to a high of around $65 last year. The stock isn’t as cheap as it was in early October but still looks attractive at the current price. Investors who buy at the time of writing can get a 4.2% dividend yield.
Telus
Telus (TSX:T) trades for close to $24 compared to $34 at one point in 2022. This is a big pullback for a business that expects to generate consolidated revenue growth of at least 9.5% in 2023 compared to last year. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) are expected to be at least 7% higher.
Telus gets most of its revenue from the core mobile and internet services businesses. These divisions tend to perform well in all economic conditions due to the essential nature of the services, so Telus should be a good stock to own during a recession.
Telus had to reduce its financial guidance this year as a result of challenges being faced by its Telus International subsidiary. That has contributed to the slide in Telus in recent months, but the reaction is probably overdone, considering the division that includes Telus International contributed roughly 10% of overall Q1 adjusted EBITDA.
Telus has increased the dividend annually for more than 20 years. At the current share price, investors can get a 6.25% dividend yield.
The bottom line on top TSX dividend stocks
Enbridge, Fortis, and Telus pay attractive dividends that should continue to grow. If you have some cash to put to work in a TFSA portfolio targeting passive income, these stocks still look cheap and deserve to be on your radar.
