2 Top TSX Dividend Stocks That Still Look Oversold

These dividend-growth stocks now have yields above 7%.

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Increases to interest rates contributed to an extended pullback in the share prices of several top Canadian dividend stocks over the past two years. Now that the Bank of Canada has started to cut rates, bargain hunters are searching for cheap TSX dividend stocks that could move higher in the coming months.

BCE

BCE (TSX:BCE) trades near $46.50 at the time of writing. The stock dipped as low as $44 in April, and is way off the $74 it reached in 2022.

Rising interest rates and falling revenue in the media division are to blame for most of the decline.

BCE spends billions of dollars every year on network upgrades to make sure its customers have the wireless and wireline broadband capacity they need for work and entertainment. The company uses debt to fund part of the financing of these initiatives. Higher borrowing costs reduce profits and can eat into cash that could be used for dividends or share buybacks.

The media group has faced sliding ad revenues in the television and radio segments as customers trimmed budgets or shifted marketing funds to digital alternatives. BCE’s Q1 2024 results showed an improvement in the media group, so the worst might be over for that division as its digital revenues continue to climb. BCE sold or closed dozens of radio stations and reduced programming across the television group to adjust to the changing market conditions. These efforts, along with extensive staff reductions, should reduce expenses considerably to help the bottom line.

BCE raised the dividend for 2024 and expects adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to be slightly higher in 2024 than last year. Based on this outlook, the stock is probably oversold.

Investors who buy BCE stock at the current level can get a dividend yield of 8.6%.

TC Energy

TC Energy (TSX:TRP) also traded for close to $74 two years ago. The stock slipped as low as $44 in the past year and currently trades near $53 per share.

Interest rate increases are part of the story of TC Energy’s decline. The company uses debt to finance part of its development program. Soaring costs on a major project haven’t helped.

As with telecoms, energy infrastructure companies have large capital budgets. Building new pipelines can take years and the final cost of a project is often several billion dollars. As an example, TC Energy reached mechanical completion on its Coastal GasLink development late last year. The project’s final cost is expected to be in the range of $14.5 billion, which is more than double the original budget.

Management raised $5.3 billion through the sale of an interest in some U.S. assets in 2023 and is targeting another $3 billion in 2024 to reduce debt and shore up the balance sheet to pursue the rest of the growth program. TC Energy is also spinning off its oil pipelines business. This could make TRP stock more attractive to institutional investors. The remaining assets in the business focus on natural gas and power generation.

TC Energy will invest about $8 billion on capital projects in 2024 and is targeting capital outlays of $6 billion to $7 billion annually over the medium term. The resulting boost to cash flow as the new assets go into service should support ongoing dividend increases.

TC Energy raised the payout in each of the past 24 years. At the current share price, investors can get a yield of 7.2%.

The bottom line on top high-yield TSX stocks

Near-term volatility should be expected, but declining interest rates could help put a new tailwind behind BCE and TRP in 2025. The stocks look cheap right now and offer attractive dividends that pay you well to ride out additional turbulence.

If you have some cash to put to work in a portfolio targeting high-yield dividends, these stocks deserve to be on your radar.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. Fool contributor Andrew Walker owns shares of BCE.

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