Dividend investors have an opportunity to buy some of Canada’s best dividend stocks at undervalued prices. Jumping in when a stock is out of favour takes some courage and patience. Cheap dividend-growth stocks sometimes get even cheaper before they recover, but the rewards can be meaningful through the higher dividend yield and the potential long-term capital gains when the stock rebounds.
TD Bank
TD (TSX:TD) trades near $79.50 at the time of writing compared to $107 two years ago. The stock isn’t too far off the 12-month low of around $76 that it hit in late October last year.
Declines from the peak of the post-crash rally are largely due to the impact of rising interest rates in Canada and the United States. TD has large retail banking operations in both markets, and investors are concerned that the Bank of Canada and the U.S. Federal Reserve will keep rates too high for too long as they battle to cool down the economy and get inflation under control.
TD increased its provision for credit losses (PCL) in fiscal 2023, and the trend is expected to continue as customers with too much debt struggle to cover their payments as interest rates increase. That being said, TD’s overall loan book remains in good shape, and the bank has excess capital on hand to help it ride out ongoing market turbulence.
TD is a very profitable bank and recently increased its dividend, so management doesn’t appear to be overly concerned about the profit outlook. Investors who buy the stock at the current level can get a 5.1% dividend yield.
Buying TD on big pullbacks has historically turned out to be a savvy move over the long run.
BCE
BCE (TSX:BCE) just announced plans to cut 4,800 employees, or roughly 9% of its staff, in 2024 to reduce its cost structure. The news came out reporting the 2023 financial results. BCE’s media division is struggling with declining ad revenue, and the company is selling 45 radio stations.
The stock initially fell more than 4% on the news. At the time of writing, BCE trades near $51.25. That’s still above the 12-month low, around $49.50, but way down from the $65 the stock fetched last spring and more than $73 at the high point in 2022.
Challenges in the TV and radio businesses will likely continue. However, BCE’s core mobile and internet subscription businesses continue to perform well, and these essential services are needed by companies and households regardless of the state of the economy.
BCE is a contrarian pick today. Investors who buy at the current level can get a 7.5% dividend yield, which is great for a portfolio focused on passive income. The company actually delivered solid financial results in 2023 that met guidance and just raised the dividend by about 3% for 2024.
The bottom line on cheap TSX stocks
TD and BCE pay reliable dividends with high yields. Ongoing volatility should be expected, but these stocks look cheap right now and deserve to be on your radar for a portfolio targeting dividends and passive income.
