Top TSX dividend stocks are starting to attract bargain hunters after an extended pullback over the past two years. Contrarian investors seeking high-yield passive income are wondering which great Canadian dividend stocks remain undervalued and could be good to buy for a self-directed Tax-free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio.
BCE
BCE (TSX:BCE) is down 30% in the past year and off nearly 40% from the 2022 high.
The drop is largely due to the impact of higher interest rates. BCE uses debt to fund part of its large capital program. Increased borrowing costs reduce profits and can put a dent in cash flow available for distributions to shareholders.
BCE raised the dividend by 3.1% for 2024. This is down from the 5% average increase the company gave investors in each of the previous 15 years.
BCE is also facing revenue challenges in the media business. Advertisers are not spending as much on radio and television ads. Companies are shifting ad spending to digital alternatives or cutting back marketing budgets to preserve cash flow.
Regulatory uncertainty and price wars in the mobile sector are also having an impact on the business. BCE announced job cuts of about 6,000 positions over the past year, as it adjusts to the current market conditions.
Despite the headwinds, BCE still expects to deliver 2024 revenue and earnings before interest, taxes, depreciation, and amortization (EBITDA) that will be in line with 2023. Benefits from lower expenses and reduced capital outlays should show up in 2025. Difficulties will persist, but the market reaction might be overdone at this point.
Investors who buy BCE at the current share price can get a dividend yield of 8.7%.
Enbridge
Enbridge (TSX:ENB) is up more than 5% in recent days and more gains could be on the way. The stock trades for less than $49 per share compared to a peak of around $59 at the peak in 2022.
High interest rates in Canada and the United States are to blame for the drop in the share price over the past two years. The Bank of Canada and the U.S. Federal Reserve increased interest rates to try to cool down the economy and get inflation under control. The efforts appear to be working. Inflation in the U.S. and Canada is down from 9% and 8%, respectively, in June 2022 to 3.5% and 2.9% in March 2024. This is still above the 2% target in both countries, so rates could remain elevated for some time, but economists broadly expect the central banks to start cutting rates by the end of this year or in early 2025.
Enbridge uses debt to fund part of its growth initiatives, including the $25 billion capital program and acquisitions. The company is wrapping up its US$14 billion takeover of three U.S. natural gas utilities and expects to deliver solid EBITDA and distributable cash flow growth in the coming years. This should support continued dividend increases. Enbridge raised the payout in each of the past 29 years.
At the time of writing, the stock provides a 7.5% yield.
The bottom line on top TSX dividend stocks
BCE and Enbridge are good examples of top Canadian dividend-growth stocks that offer high yields. If you have some cash to put to work, these stocks are probably oversold right now and deserve to be on your radar.
