The market correction is providing retirees and other Tax-Free Savings Account (TFSA) investors with an opportunity to buy top TSX dividend stocks at undervalued prices for portfolios focused on passive income.
TC Energy
TC Energy (TSX:TRP) operates 93,000 km of natural gas pipelines in Canada, the United States, and Mexico. The company also has oil pipelines and power generation facilities.
Natural gas demand is expected to grow in the coming years, as domestic and international utilities shift from coal and oil to natural gas to produce electricity. Ideally, all power would come renewable energy facilities, but the renewable energy sector has its limitations. Cloudy days, calm days, and periods of drought all impact the ability of solar, wind, and hydroelectric assets to produce power. As a result, electricity providers need to have backup generation sources to meet surges in demand. Natural gas emits less carbon dioxide when burned than oil or coal, so it is becoming the preferred fuel during the transition to more renewable power.
TC Energy has the assets in place and under construction to move natural gas from producers to domestic utilities or liquified natural gas (LNG) sites where the fuel is then shipped overseas.
TC Energy’s share price tumbled through the second half of 2022 and remains under pressure. The Coastal GasLink project is largely responsible for the slide, although the broader energy sector has also pulled back from the June 2022 highs. The Coastal GasLink pipeline will move natural gas from producers in northeastern British Columbia to a new LNG facility on the B.C. coast. Initially, TC Energy expected the project to cost less than $7 billion. The latest update pegs the anticipated cost at $14.5 billion.
On the bright side, investors should now have a reasonable grasp on the cost risks. The pipeline is 83% complete.
TC Energy still expects to generate enough revenue and cash flow growth to boost the dividend by 3-5% annually over the medium term, supported by the $34 billion capital program. Assuming that turns out to be the case, the stock appears oversold right now and offers investors a 6.75% dividend yield.
BCE
BCE (TSX:BCE) trades for close to $60.50 per share at the time of writing compared to more than $73 last spring. The drop looks exaggerated considering the solid performance of the overall business in 2022 and the decent guidance for this year.
BCE expects revenue and free cash flow to improve in 2023. Adjusted earnings, however, will likely slip due to higher debt costs as a result of the sharp increase in interest rates in recent months. The board of directors, however, is confident in BCE’s ability to navigate an economic downturn and recently increased the dividend by 5.2% for 2023. This is the 15th consecutive annual dividend hike of at least 5%.
BCE has the power to raise prices when it needs extra cash to cover rising costs and the largest part of the revenue stream comes from essential mobile and internet services. Investors who buy the stock at the current price can get a 6.4% dividend yield.
The bottom line on top stocks to buy for passive income
TC Energy and BCE pay attractive dividends that should continue to grow. If you have some cash to put to wok in a TFSA focused on passive income, these stocks appear cheap today and deserve to be on your radar.
