Retirees: 2 Cheap TSX Dividend Stocks to Buy Now for Growing Passive Income

These industry leaders look cheap and pay safe dividends for a TFSA focused on passive income.

| More on:
money cash dividends

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

The market correction hitting the TSX Index is finally giving retirees a chance to buy some top Canadian dividend stocks at undervalued prices to generate reliable and growing passive income inside a TFSA portfolio.

Royal Bank

Royal Bank (TSX:RY)(NYSE:RY) trades for $127 per share at the time of writing compared to nearly $150 earlier this year. The stock now offers investors a solid 4% dividend yield with prospects for good distribution growth in the coming years.

Royal Bank increased the dividend by 11% in late 2021 and recently bumped it up by another 7% after reporting strong fiscal Q2 2022 results. The company made it through the pandemic in great shape and is using some of the excess cash it built to make strategic acquisitions. Royal Bank is buying a wealth management firm in the U.K. for $2.6 billion in a move that will provide a solid platform to expand the group’s presence in that market.

Royal Bank has a great track record of providing investors with dividend growth and decent total returns. The stock appears undervalued right now at 11 times trailing 12-month earnings.

Investors are concerned that rising mortgage rates will create a crash in the Canadian housing market. This would be negative for Royal Bank and its peers, but things would have to get really bad before Royal Bank takes a meaningful hit. The likely outcome is a drop of 10-15% in house prices and a gradual increase in loan defaults.

At this point, the risks are likely already built into the share price.

BCE

BCE (TSX:BCE)(NYSE:BCE) has been a favourite among retirees for decades, and there is good reason for that trend to continue. The communications giant has a strong balance sheet, enjoys a wide competitive moat, has the power to raise prices, and generates solid free cash flow to cover the generous dividend.

BCE is running fibre optic lines to the premises of its customers and is also building out a 5G wireless network. These capital programs will enable customers to access the broadband they need for work and play while providing BCE with new revenue opportunities.

The bulk of BCE’s revenue comes from essential services such as internet and wireless subscriptions, so the company has some built-in protection against an economic downturn. This doesn’t mean BCE is recession-proof, as its media business can see a drop in advertising revenue when times get tough and new phone sales can slow down, as people decide to use older models for longer.

That being said, the stock looks cheap right now near $62.50 per share and provides investors with an attractive 5.9% dividend yield.

The board raised the dividend by at least 5% annually for the past 14 years, and investors should see the streak continue over the medium term. BCE expects free cash flow to grow by 2-10% in 2022.

The bottom line on top stocks for passive income

Royal Bank and BCE are leaders in their respective industries. The companies pay reliable and growing dividends and provide services that people and businesses need in all economic conditions. If you have some cash to put to work in a TFSA focused on passive income, these stocks deserve to be on your radar.

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.

The Motley Fool has no position in any of the stocks mentioned. Fool contributor Andrew Walker owns shares of BCE.

More on Investing

money cash dividends
Dividend Stocks

2 Passive-Income ETFs to Buy in 2022

Unlike stocks, distribution-focused ETFs may not offer an equally healthy capital-appreciation potential, but they might still be worth buying.

Read more »

Businessperson's Hand Putting Coin In Piggybank
Dividend Stocks

RRSP Investors: 2 Top Total-Return Stocks to Build Retirement Wealth

These top TSX dividend stocks offer high yields and currently trade at discounted prices.

Read more »

Dollar symbol and Canadian flag on keyboard
Dividend Stocks

The 3 Best TSX Dividend Stocks That Pay Cash Monthly

Looking to earn monthly passive income from top dividend stocks? Here are three fresh ideas for July 2022.

Read more »

Cogs turning against each other
Dividend Stocks

2 Resilient Value Stocks That Could Weather the Storm

The resilient businesses of two value stocks can help you endure recessionary pressures and deliver superior returns in 2022.

Read more »

exchange traded funds
Investing

3 Must-Buy Bank of Montreal ETFs to Ride Out a Recession

Passive investors may wish to buy BMO Covered Call Canadian Banks ETF (TSX:ZWB) and two other incredible ETFs that right…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

Retirees: Fortify Your Portfolio by Building a 2nd Pension

One of the best ways to utilize your retirement savings without depleting them is to invest them in dividend stocks.…

Read more »

Man holding magnifying glass over a document
Stocks for Beginners

The Valuation Conundrum: P/E Ratio vs. P/S Ratio

Did you buy a stock with low P/S ratio and make a loss? Most investors fall prey to the valuation…

Read more »

growing plant shoots on stacked coins
Energy Stocks

Buy the Dip? 2 TSX Energy Stocks With Fast-Growing Dividends

TSX energy stocks have seen a double-digit decline in June. Here are two stocks with incredibly fast-growing dividends to consider…

Read more »