Bargain hunters have been buying oversold Canadian dividend stocks in the hopes that interest rates have peaked. Investors who missed the rebound can still find top TSX dividend stocks trading at undervalued prices for a self-directed Tax-Free Savings Account (TFSA) portfolios targeting passive income or a Registered Retirement Savings Plan (RRSP) focused on total returns.
TC Energy (TSX:TRP) trades for close to $51.50 at the time of writing compared to $74 at one point in 2022. Contrarian investors could have scooped up TRP stock for about $45 in early October, but the shares still appear cheap.
TC Energy is on track to hit the upper range of its 2023 financial guidance. This is impressive considering the challenges the business faced in the past couple of years. Rising interest rates are driving up borrowing costs. That can put a dent in profits for businesses like TC Energy that use debt as part of their funding strategy to drive growth.
The company recently reached mechanical completion on its Coastal GasLink project. The 670 km pipeline will transport natural gas from producers to a liquified natural gas (LNG) export facility being built in British Columbia. Pandemic delays, bad weather, and high inflation all combined to drive the cost of the project to roughly $14.5 billion, more than double the original expectations.
The combination of rate hikes and the project issues caused investors to avoid the stock over the past year, but the market might be overlooking the long-term outlook.
TC Energy still plans to boost the dividend by at least 3% per year over the medium term, supported by ongoing growth projects. Investors who buy TRP stock at the current level can get a 7.2% dividend yield. The board has increased the dividend annually for more than two decades.
BCE (TSX:BCE) cut staff this year and closed some radio stations as part of its efforts to adjust to falling advertising revenues in the radio and television assets of the company’s media division. The bright spot in the group has been the digital platforms that continue to see ad revenue grow, but this hasn’t been enough to offset the challenging conditions in the other segments.
In addition, the rise in interest rates over the past year is driving up BCE’s borrowing costs. BCE spends a lot of money on network infrastructure, including its 5G mobile network and the extension of fibre optic lines to the premises of its customers. The company uses debt to fund part of these initiatives, so the jump in borrowing costs caused by rate hikes is putting pressure on profits.
That being said, BCE’s core mobile and internet businesses are performing well. Management confirmed guidance for revenue and free cash flow growth in 2023 compared to last year. That should support the dividend heading into 2024.
BCE has increased the distribution by at least 5% in each of the past 15 years. At the time of writing, investors can get a 7% yield. BCE trades for close to $55 at the time of writing. The stock was $65 in May, so there is decent upside potential on a rebound.
The bottom line on top TSX dividend stocks
TC Energy and BCE are good examples of high-yield stocks with dividends that should continue to grow. If you have some cash to put to work, these stocks still look cheap and deserve to be on your TFSA or RRSP radar.