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Dividend Stocks to Buy: Toronto-Dominion Bank or BCE?

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For dividend investors, one of the best times to buy quality stocks is when they’re selling cheap. After the COVID-19-induced sell-off in markets, this opportunity is right here. 

In Canada, banks and telecom companies provide hefty dividends and always compete for investors’ money. Today, I’m comparing two top dividend stocks from these sectors to understand which one is a better buy. Let’s take a look.

Toronto-Dominion Bank

From the top six Canadian banks, Toronto-Dominion Bank (TSX:TD)(NYSE:TD) is one of my favourite dividend stocks to buy in this space. The lender has an excellent payout policy, distributing between 40% and 50% of income in dividends each year. In addition, TD has a great diversification business with its wide presence in the U.S.

It generates about 30% of its net income from the U.S. retail operations. The bank also has a 42% ownership stake in TD Ameritrade with a fast-expanding credit card portfolio. Following its aggressive growth in the U.S. during the past decade, TD now runs more branches south of the border than it does in Canada.

After a 16% plunge in TD Bank stock value this year, the lender has become quite attractive to buy for dividend investors. After the decline, its stock now yields more than 5%, which is one of the best yields in recent times. 

In the current environment, there are also risks to TD’s dividend growth. A prolonged recession and extremely low interest rates could hurt the lender’s earnings and slow its dividend growth. 

The bank is forecast to grow its dividend payout between 7% and 10% each year going forward, but investors should be ready to accept a lower rate of growth if the economy doesn’t improve quickly from the pandemic shock.


Telecom utilities are considered a defensive play. Investors buy telecom stocks to earn a steadily growing dividend stream in both a good and bad economy. 

In this space, Canada’s largest telecom operator, BCE (TSX:BCE)(NYSE:BCE) is a great pick to make the above-average returns. BCE now yields 5.6%, offering one of the best dividend yields one can get from a quality stock in an environment when other savings products are offering close to zilch. 

The telecom operator has a strong dominant position in Canada’s highly regulated telecom market, where three big players make most of the revenues. BCE, through its diversified service offerings, including wireless, home internet, and media operations, has shown sustained growth in its subscribers.

BCE has long maintained a policy of increasing its dividend by 5% annually and has used a series of acquisitions to partly fuel the cash flow growth necessary to keep boosting the payout. 

I don’t think BCE’s dividend safety is under threat after the economic slowdown caused by the pandemic. The company will face a temporary slowdown in sales, but it will recover quickly once the virus is contained.

Bottom line

Between TD Bank and BCE, I believe BCE is a safer bet when the economic situation is uncertain. Banks are closely tied with the economy, and they face increasing risks when the economy slips into a recession. That said, TD has a solid portfolio, and there is little risk of its dividend cut. If you have a higher risk appetite, then you can equally divide your position and buy both BCE and TD stocks.

Speaking of dividend stocks, here are our best picks for this month.

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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 Haris Anwar owns shares of BCE Inc.

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