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The correction in the share prices of many top TSX dividend stocks is giving retirees and other investors seeking passive income a chance to buy great Canadian dividend stocks at cheap prices.
BCE (TSX:BCE) is a good example of a dividend-growth stock that looks oversold and now offers a high yield. The shares trade below $52 at the time of writing compared to $65 earlier this year.
The decline might be exaggerated, considering the company’s core mobile and internet services businesses are needed by customers in all economic conditions and generate steady revenue and cash flow.
BCE continues to make investments to drive future growth. The company spent about $5 billion last year on capital initiatives, including the 5G mobile network and the expansion of fibre-optic lines to the premises of its customers. These projects are expensive, but they help protect BCE’s competitive position and should lead to revenue expansion in the coming years. BCE’s share price pullback is largely due to the sharp increase in interest rates that is driving up debt costs. Once the Bank of Canada signals it is done raising rates to fight inflation, there could be a meaningful rally.
On the operational side, BCE’s media business is struggling with lower ad sales across the TV and radio platforms. This trend could continue for some time, but the media division is small compared to the core mobile and internet operations that continue to perform well.
BCE expects profits to dip this year due to higher borrowing costs, but overall revenue and free cash flow are predicted to grow. That should support the dividend heading into 2024. BCE increased the payout by at least 5% annually over the past 15 years. Investors can currently get a 7.5% dividend yield on BCE stock.
CIBC (TSX:CM) increased its dividend earlier this year. That should be a signal to investors that the management team is confident in the bank’s ability to continue to generate solid profits, even as rising interest rates drive up provisions for loan losses and create economic headwinds.
CIBC stock trades near $48 per share at the time of writing. It was as high as $83 in early 2022. Bank stocks are broadly under pressure as investors worry that the Bank of Canada and the United States Federal Reserve will trigger a deep economic decline as they battle to get inflation back to the 2% target. Inflation in September was just under 4%.
Rate hikes take time to work their way through the economy. This lag is the reason investors think interest rates have potentially gone too high and might stay elevated for too long. In the scenario where a deep recession occurs and unemployment surges, there could be a wave of commercial and household bankruptcies.
That being said, economists widely expect a soft landing for the economy. If that situation materializes, CIBC is probably oversold today. The bank remains very profitable, and management has built up a solid capital cushion to ride out difficult times.
Investors who buy CM stock at the current level can get a 7% dividend yield.
The bottom line on high-yield stocks for passive income
BCE and CIBC pay attractive dividends that should continue to grow. If you have some cash to put to work in a portfolio focused on passive income, these stocks look cheap today and deserve to be on your radar.