Better Buy for TFSA Passive Income: Telus Stock or TD Bank?

Telus stock and TD stock look cheap today. Is one really oversold?

| More on:

Image source: Getty Images

The market correction is giving dividend investors a chance to buy top TSX dividend stocks at cheap prices for a Tax-Free Savings Account (TFSA) portfolio. Telus (TSX:T) and TD Bank (TSX:TD) are long-time favourites among retirees and other investors seeking passive income.


Telus is Canada’s second-largest communications company with a current market capitalization near $39 billion. The stock trades close to $27 per share at the time of writing compared to the 12-month high around $34.

A steady slide over the past year has more to do with the broader market correction than with any specific issues at the company. Telus generated solid results in 2022. The company achieved 10% growth in cash flow from operations and free cash flow jumped 64% compared to 2021 to almost $1.3 billion.

Management expects 2023 to deliver strong results. Operating revenue growth will be in the 11-14% range with growth in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) anticipated to be 9.5-11%. The business should generate $2 billion in free cash flow this year. That’s all good news for dividend investors.

Telus typically increase the dividend by 7-10% per year. The current payout provides a 5.1% yield.

TD Bank

TD built up a massive pile of excess cash during the pandemic and has decided to use the funds to make two strategic acquisitions in the United States. The bank recently completed its US$1.3 billion purchase of Cowen, an investment bank, in a move that will beef up TD’s capital markets operations.

The larger deal is still unfolding. TD initially agreed to purchase First Horizon, a regional bank based in the southeastern part of the United States, for US$13.4 billion. Investors are wondering if the acquisition will close after the recent turmoil in the banking sector sent First Horizon’s share tumbling as much as 40% below TD’s purchase price.

TD’s stock fell in the past few weeks amid the broader selloff in bank stocks and is under added scrutiny from investors due to the First Horizon deal and TD’s existing American presence. TD already operates more branches south of the border than it does in Canada. The recent failure of two regional banks in the United States is making investors nervous. If the First Horizon purchase goes through, TD would become a top-six retail bank in the American market.

TD trades near $79 per share at the time of writing compared to $93 in February. Investors who buy at the current price can get a 4.8% dividend yield.

The noise in the bank sector is distracting investors from TD’s solid start to fiscal 2023. The bank reported adjusted net income of $4.155 billion in the fiscal first quarter (Q1) 2023 compared to $3.833 billion in fiscal Q1 2022.

Is one a better bet for TFSA passive income?

Telus and TD pay attractive dividends that should continue to grow. The stocks appear undervalued today and both deserve to be on your radar for a buy-and-hold TFSA portfolio targeting passive income. If you only buy one, Telus is probably the safer bet in the near term due to the ongoing volatility in the bank sector and the uncertainty around TD’s big acquisition.

TD, however, likely offers better upside potential for contrarian investors who don’t mind riding out some turbulence.

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 recommends TELUS. The Motley Fool has a disclosure policy. Fool contributor Andrew Walker owns shares of Telus.

More on Dividend Stocks

dividends grow over time
Dividend Stocks

1 Magnificent Dividend Stock That’s Down 10% and Trading at a Once-in-a-Decade Valuation

This dividend stock may be down around 10%, but there is a huge future opportunity for those wanting growth as…

Read more »

Canada national flag waving in wind on clear day
Dividend Stocks

RRSP Must-Haves: 2 Canadian Stocks to Secure Your Future

The TSX’s dividend pioneer and first Dividend King are must-haves in an RRSP to ensure financial security in retirement.

Read more »

stock research, analyze data
Dividend Stocks

How Much to Invest to Get $500 in Dividends Every Month

TSX dividend stocks such as Enbridge, TD Bank, and Telus, can help you earn $500 in monthly dividend payments.

Read more »

Golden crown on a red velvet background
Dividend Stocks

Dividend Powerhouses: Canadian Stocks to Fuel Your Portfolio

These two top Canadian dividend aristocrats are some of the top stocks on the TSX to buy now and hold…

Read more »

Dial moving from 4G to 5G
Dividend Stocks

This Undervalued Dividend Stock is Worth Buying Right Now

Want an undervalued dividend stock with long-term potential and a juicy yield? Here's an option you may regret not buying…

Read more »

A worker gives a business presentation.
Dividend Stocks

1 Stock I’m Buying Hand Over Fist in July Despite the Market’s Pessimism

This top dividend stock is going through a rough patch, but don't let that count out all the growth we've…

Read more »

person on phone leaning against outside wall with scenic view at airbnb rental property
Dividend Stocks

2 TSX Stocks Poised to Have a Big Summer

Restaurant Brands International (TSX:QSR) stock and another darling that could be too cheap to ignore this summer.

Read more »

Dividend Stocks

Forget Fortis Stock: Buy This Magnificent Utilities Stock Instead

Looking for high dividends and returns? Then I'm sorry, but Fortis (TSX:FTS) stock probably isn't for you.

Read more »