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Interest rate hikes over the past two years have significantly impacted the share prices of several leading Canadian dividend stocks. As the Bank of Canada begins to cut rates, savvy investors are on the lookout for undervalued TSX dividend stocks poised to rebound in the coming months.
BCE (TSX: BCE)
BCE currently trades around $46.50, having dipped as low as $44 in April, far from its 2022 peak of $74. The decline is primarily due to rising interest rates and reduced revenue in the media division.
BCE invests billions annually in network upgrades to ensure robust wireless and wireline broadband capacity for its customers. These investments are partly funded by debt, and higher borrowing costs have squeezed profits, affecting funds available for dividends or share buybacks.
The media division faced declining ad revenues in TV and radio as clients cut budgets or redirected funds to digital platforms. However, BCE’s Q1 2024 results indicated a recovery in the media group, with digital revenues on the rise. The company has also streamlined operations by selling or closing numerous radio stations and cutting TV programming, alongside significant staff reductions. These measures are expected to reduce expenses and improve profitability.
Despite these challenges, BCE raised its dividend for 2024 and anticipates a slight increase in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) compared to last year. Given this outlook, the stock appears oversold. Investors buying BCE at its current price can enjoy a dividend yield of 8.6%.
TC Energy (TSX:TRP)
TC Energy was near $74 two years ago but fell to about $44 in the past year, now trading around $53 per share. Interest rate hikes have impacted TC Energy, which relies on debt for its development projects. Additionally, the company has faced escalating costs on major projects.
Energy infrastructure companies like TC Energy have substantial capital budgets, with new pipelines often taking years and billions of dollars to complete. For instance, the Coastal GasLink project, completed late last year, cost $14.5 billion, more than double the original budget.
In 2023, TC Energy raised $5.3 billion by selling a stake in some U.S. assets and aims to raise another $3 billion in 2024 to reduce debt and strengthen its balance sheet for future growth. The company is also spinning off its oil pipelines business, potentially making TRP stock more attractive to institutional investors, while focusing the remaining business on natural gas and power generation.
TC Energy plans to invest approximately $8 billion in capital projects in 2024, with annual capital expenditures of $6 billion to $7 billion over the medium term. As new assets become operational, the resulting cash flow boost should support continued dividend increases.
TC Energy has raised its dividend for the past 24 years. At the current share price, the yield is 7.2%.
The Bottom Line on High-Yield TSX Stocks
While short-term volatility is likely, declining interest rates could provide a boost to BCE and TC Energy in 2025. These stocks appear undervalued and offer attractive dividends, rewarding investors for enduring any additional market turbulence.
For those looking to invest in a portfolio focused on high-yield dividends, BCE and TC Energy are worth considering.
