Interest rates have probably peaked and any hint of rate cuts rate in 2024 could push the share prices of oversold Canadian dividend stocks much higher in the coming year.
Investors who missed the recent bounce off the 2023 lows are wondering which top TSX dividend stocks are still undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio.
Enbridge (TSX:ENB) is a good example of a top Canadian dividend stock that declined considerably as interest rates increased over the past year. The stock started to recover in recent weeks, as the market began to position for the end of rate hikes in Canada and the United States.
Enbridge trades near $47 per share at the time of writing. The stock topped out around $59 in June 2022. The recent bounce could be the beginning of a steady recovery through most of next year if economists are correct in their predictions for rate cuts in both Canada and the United States in 2024.
Enbridge’s operating performance in 2023 has been solid. The third-quarter (Q3) 2023 results were largely in line with the same period last year, and Enbridge is on track to hit its full-year 2023 financial guidance, even after accounting for a large share issue to help fund a major acquisition.
Enbridge is buying three American natural gas utilities for US$14 billion. These are rate-regulated businesses that generate predictable and reliable cash flow. The addition of the assets to the existing Canadian natural gas distribution business will make Enbridge the largest natural gas utility operator in North America. Diversifying the revenue stream should attract new investors to the stock. Enbridge is known for its oil pipelines and natural gas transmission assets, but it is also investing in oil and LNG export facilities and bulking up its renewable energy division.
Higher interest rates drive up borrowing costs and can put a dent in profits. Enbridge uses debt to fund part of its growth initiatives, so there is going to be an impact from the higher rates. That being said, investors are still getting paid. The board just increased the dividend by 3.1% for 2024. This is the 29th consecutive annual dividend hike. Investors who buy ENB stock at the current level can get a 7.75% yield.
BCE (TSX:BCE) is another Canadian industry leader that looks oversold as a result of the impact of higher interest rates. BCE, like Enbridge, uses debt as part of its financing strategy to fund its network expansions and upgrades. The communications giant spent about $5 billion in 2022 on initiatives that include the 5G mobile network and the fibre-to-the-premises program. These investments should support long-term revenue growth while helping protect BCE’s competitive position.
BCE trades for close to $55 at the time of writing. That’s up from $50 in early October but still way off the $74 the stock reached in the spring of 2022 before the markets realized that the central banks hadn’t finished raising rates.
BCE is on track to generate higher revenue and free cash flow in 2023, driven by the strong performances in the core mobile and internet businesses. Investors who buy BCE stock at the current level can get a 7% dividend yield. BCE has increased the distribution by at least 5% annually for the past 15 years.
The bottom line on top TSX dividend stocks
Enbridge and BCE pay attractive dividends that should continue to grow. If you have some cash to put to work in a portfolio targeting high-yield dividends, these stocks still look cheap and deserve to be on your radar.