2 Oversold TSX Dividend Stocks to Buy for Passive Income

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The 2022 market correction is giving retirees and other TFSA investors a chance to buy top Canadian dividend stocks at undervalued prices for their portfolios focused on passive income.

Telus

Telus (TSX:T)(NYSE:TU) trades for $28.50 at the time of writing compared to $34 in April. Not much has changed regarding the outlook for the business, so the pullback is probably overdone. Investors who buy Telus stock at the current price can pick up a 4.75% dividend yield and wait for the steady stream of payout hikes to boost the yield in the coming years.

Telus intends to raise the dividend by 7-10% annually through at least 2025. That’s good guidance in this uncertain economic environment.

Telus provides essential mobile and internet services to businesses and households. This is a reliable revenue stream for the company regardless of the state of the economy. Even the TV subscription segment should hold up well when times get tough. People will cut other discretionary expenditures before cancelling the TV service.

Telus is investing in network upgrades to ensure customers have the high-speed broadband they need. The copper-to-fibre transition is nearing completion. This should free up cash for dividends or other investments in the next few years. Telus is also building out its 5G network. The next phase of the mobile evolution offers new revenue opportunities for Telus and its peers.

Telus is also spending $2.9 billion to buy LifeWorks in a move that will greatly expand the product and geographic scope of Telus Health. The digital healthcare segment offers significant growth potential for the company in the coming years.

Bank of Montreal

Bank of Montreal (TSX:BMO)(NYSE:BMO) trades near $121 per share at the time of writing and offers a 4.6% dividend yield. The stock was above $153 earlier this year, so there is decent upside opportunity when the financial sector rebounds.

Bank of Montreal is in the process of buying Bank of the West for US$16.3 billion. The deal will add more than 500 branches to Bank of Montreal’s BMO Harris Bank business in the United States that has grown steadily since the 1980s. The new acquisition gives Bank of Montreal a strong foothold in California to drive growth in the state.

Bank of Montreal raised the dividend by 25% late last year and gave investors another 4.5% increase when it reported fiscal Q2 2022 results. The bank remains very profitable and has the balance sheet strength to ride out a potential recession. Bank of Montreal has less relative exposure to the Canadian residential housing market than some of its peers, so the stock might be a good pick for investors who want to buy the dip in the Canadian banks but are concerned about a possible plunge in the housing market as interest rates rise.

The bottom line on top stocks to buy for passive income

Telus and Bank of Montreal are top dividend payers that look undervalued at their current prices. If you have some cash to put to work in a TFSA focused on passive income, these stocks deserve to be on your radar right now.

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