TFSA Dividend Investors: Should You Buy BCE (TSX:BCE) or BMO (TSX:BMO) Stock?

BCE (TSX:BCE) and Bank of Montreal (TSX:BMO) offer dividend yields near 6%. Is one a better buy today?

| More on:
Where to Invest?

Image source: Getty Images

Dividends investors want high yield without taking on too much risk.

The market crash in March briefly sent the yields on some of Canada’s top dividend stocks to levels not seen since the Great Recession. The sharp rebound in the TSX Index continues to bring yields down, but investors can still find good deals at current stock prices.

Let’s take a look at two dividend stocks that might be interesting picks right now for a dividend-focused TFSA portfolio.

BCE

BCE (TSX:BCE)(NYSE:BCE) just announced a deal to sell 25 of its data centre facilities for $1.04 billion in cash. The deal underscores BCE’s shift to focus investment on network infrastructure and communications services.

BCE is Canada’s largest communications company with wireless, wireline, and media assets with the potential to interact with most Canadians on a regular basis. The company has 22 million consumer and business connections in the country.

The media group is going through a rough time during the pandemic lock downs. Sports teams are still waiting to restart their seasons and businesses have cut back on ad spending to preserve cash.

As the provinces move through the reopening process, the economy will eventually get back on track and that should help the media group recover. In the meantime, the mobile, internet, and TV services are seeing strong demand as people work and study from home.

BCE’s dividend is known for being reliable through challenging economic conditions and the stock tends to hold up well when the broader market hits periods of volatility.

At the time of writing, investors can buy the stock for $57 and get a dividend yield of 5.8%. The shares traded as high as $65 in the past 12 months, so there is some upside potential on a recovery in the media group.

Bank of Montreal

Bank of Montreal (TSX:BMO)(NYSE:BMO) paid its first dividend more than 190 years ago and has given investors a slice of the profits every year since. That’s a good track record.

The share prices of the big Canadian banks are off the March lows, but still down from the highs reached before the pandemic. Bank of Montreal earned $689 million in fiscal Q2 2020, compared to $1.49 billion in the same period last year.

The drop comes as a result of an increase in provisions for credit losses (PCL). Bank of Montreal set aside $1.12 billion for potential loan defaults in the coming months.

It’s possible the actual losses will turn out to be lower than anticipated, but there is still much uncertainty on how quickly the economy will recover. A V-shaped rebound with unemployment levels falling steadily through the end of the year would reduce the potential defaults on mortgages and other loans.

The Big Six Canadian banks have authorized deferrals for up to six months on roughly 15% of outstanding mortgages.

Bank of Montreal expects Canadian real gross domestic product to contract 6% in 2020 and then rebound 6% next year. If that turns out to be the case, the stock appears cheap right now for buy-and-hold investors.

The stock trades at $69 per share right compared to $104 in January. The $1.06 quarterly dividend should be safe and Bank of Montreal now offers an attractive 6.1% annualized yield.

Is one a better buy?

BCE might be the way to go if you are concerned the recession will last longer than expected.

Otherwise, investors who see a V-shaped recovery on the horizon should consider Bank of Montreal as the first choice.

While bank stocks arguably carry more short-term risk, they also appear cheap right now, especially if the loan losses turn out to be less than anticipated.

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.

Fool contributor Andrew Walker owns shares of BCE.

More on Dividend Stocks

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Magic: Earn Enormous Passive Income That the CRA Can’t Touch

If you're seeking out passive income, with zero taxes involved, then get on board with a TFSA and this portfolio…

Read more »

Man with no money. Businessman holding empty wallet
Dividend Stocks

2 Stocks Under $50 New Investors Can Confidently Buy

There are some great stocks under $50 that every investor needs to know about. Here’s a look at two great…

Read more »

think thought consider
Dividend Stocks

Down 10.88%: Is ATD Stock a Good Buy After Earnings?

Alimentation Couche-Tard (TSX:ATD) stock might not be the easy buy-case it once was. Here’s a look at what happened.

Read more »

money cash dividends
Dividend Stocks

TFSA Dividend Stocks: Earn $1,200/Year Tax-Free

Canadian stocks like Fortis are a must-have in your portfolio to earn tax-free yields for decades.

Read more »

sale discount best price
Dividend Stocks

1 Dividend Stock Down 11 Percent to Buy Right Now

Do you want a great dividend stock down 11% that can provide years of growth potential? Here's one heavily discounted…

Read more »

Growth from coins
Dividend Stocks

1 Grade A Dividend Stock Down 11% to Buy and Hold Forever 

If you're looking for the right dividend stock at the right price, you're going to want to consider this insurance…

Read more »

Target. Stand out from the crowd
Dividend Stocks

2 Dividend Stocks to Double Up on Right Now

Are you looking for dividend stocks to buy right now? Here are two top picks!

Read more »

edit Taxes CRA
Dividend Stocks

Tax Time: How to Keep More of Your Money

Nearly everyone hates paying taxes, although Canadians can lessen the financial pain with the right tax strategies.

Read more »