The Bank of Canada recently cut interest rates by 0.5%. Traders are responding to the shift by moving back into TSX dividend stocks that sold off in 2022 and 2023 when the central bank raised rates aggressively to combat inflation.
Investors who missed the bounce over the past few weeks are wondering which top Canadian dividend stocks are still undervalued and good to buy for a portfolio focused on passive income or total returns.
Enbridge
Enbridge (TSX:ENB) trades near $53 per share at the time of writing. The stock is up about 10% in the past month, but is still below the $59 it reached in 2022 before the onslaught of rate hikes really ramped up in Canada and the United States.
Enbridge uses debt to fund part of its growth program that includes acquisitions and development initiatives in both Canada and the United States. Bond yields are already falling south of the border amid speculation the U.S. Federal Reserve will start to cut interest rates next month to avoid pushing the economy into a recession. Cheaper debt reduces borrowing expenses for Enbridge and keeps more cash available for distributions.
Enbridge is in the process of wrapping up the final part of its US$14 billion acquisition of three natural gas utilities in the United States and has a $24 billion capital program on the go to drive additional cash flow growth. The company just reported strong second-quarter (Q2) 2024 results and increased guidance for full-year adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). This should support a solid dividend increase in 2025.
Enbridge raised the distribution in each of the past 29 years. Investors who buy ENB stock at the current level can still get a dividend yield of 6.9%. It wouldn’t be a surprise to see Enbridge’s share price drift up to the $60 mark by the end of next year if the American central bank cuts interest rates over the next few quarters.
BCE
BCE (TSX:BCE) is another high-yield Canadian dividend stock that picked up a nice tailwind in the past few weeks. The communications giant’s share price is near $48 at the time of writing compared to $43 a month ago but is still way off the $74 it hit in the spring of 2022.
BCE’s restructuring efforts over the past year have reduced operating expenses, helping the company hit its financial goals for 2024. This should position the business to deliver solid results in 2025 amid challenging conditions in the media business and ongoing price wars in the mobile market. Lower borrowing costs will also help the bottom line and should free up more cash for distributions.
BCE delivered adjusted EBITDA growth of 2% in Q2 2024 compared to the same period last year. Free cash flow increased by 8%. Management confirmed full-year guidance that anticipates revenue coming in flat at the low end and rising as much as 4% at the upper limit compared to 2023. Adjusted EBITDA growth for the year should be 1.5% to 4.5%.
Based on this outlook the stock is still probably oversold. Investors who buy BCE near the current level can get a dividend yield of 8.3%.
The bottom line on top stocks for dividends
Near-term volatility should be expected after the sharp jump in the share prices over the past few weeks. However, Enbridge and BCE pay attractive dividends that should continue to grow and you get paid well to ride out the 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.
