The market correction is giving Canadian retirees a chance to buy top TSX dividend stocks at undervalued prices. A number of stocks with long track records of annual dividend growth now offer attractive yields for a retirement portfolio focused on passive income.
BCE (TSX:BCE) trades for close to $61 per share at the time of writing compared to nearly $74 at one point last year.
The pullback occurred, as investors started to worry that consumers will reduce streaming subscriptions and hold old phones for longer as inflation and soaring interest rates bite into their cash flow.
The Bank of Canada’s rate increases are designed to bring inflation back down to 2%, but the path to that goal might be through a recession. If the economy weakens materially, businesses will likely reduce ad spending. This will impact BCE’s revenues in the media operations that include a television network, specialty channels, radio stations, and digital platforms.
BCE generated solid 2022 results and provided decent revenue and free cash flow guidance for 2023. Adjusted earnings are expected to decline, however, due to rising debt costs. Even with the more challenging economic outlook, the decline in the share price appears overdone.
BCE increased the dividend by 5.2% for 2023. This is the 15th consecutive year the board raised the payout by at least 5%. The core revenue streams that come from internet and mobile service subscriptions should be reliable during an economic downturn. Households and business need to stay connected to the world and communicate regardless of the state of the economy.
Investors who buy BCE stock at the current level can get a 6.3% dividend yield.
TC Energy (TSX:TRP) trades near $55 per share at the time of writing. This is down from $74 in June last year. The steep drop in the share price initially occurred as part of the broader pullback in the energy sector, but company-specific issues also came into play over the past six or seven months.
TC Energy is building the Coastal GasLink pipeline that will connect natural gas producers in northeastern British Columbia to a new liquified natural gas (LNG) facility on the B.C. coast. Project costs have ballooned due to a wave of problems, including pandemic delays, permitting issues, protests, unfavourable weather, and difficulties with contractors. In the latest update, TC Energy expects the total capital outlays to be about $14.5 billion. This is more than double the initial estimate.
On the positive side, the project is now 83% complete, and most of the bad news should be out in the open.
TC Energy generated decent 2022 results and has provided solid financial guidance for 2023. Comparable earnings before interest, taxes, depreciation, and amortization should rise by 5-7% this year. The board just raised the dividend by 3.3%. This is the 23rd consecutive annual increase.
The $34 billion capital program is expected to drive revenue and cash flow growth in the next few years to support targeted annual dividend hikes of 3-5%.
At the time of writing, investors can get a 6.7% dividend yield.
The bottom line on top stocks for passive income
BCE and TC Energy pay attractive dividends that should continue to grow. If you have some cash to put to work in a portfolio focused on passive income, these stocks look cheap today and deserve to be on your radar.