Investors who missed the big rally off the pandemic market crash are getting another chance to buy TSX dividend stocks at undervalued prices for portfolios focused on generating steady and growing passive income.
Suncor
Suncor (TSX:SU) trades for close to $44 per share at the time of writing. The stock is up 5% on the day as a result of the recent jump in the price of oil, but Suncor still trades way below the $53 mark it hit last June.
Oil bulls expect the price of oil to take a new run at US$100 per barrel in the next 12-18 months supported by the recent surprise supply cuts announced by the Organization of the Petroleum Exporting Countries and anticipated demand growth, as China extends its post-covid reopening and global travel continues to rebound.
Suncor made good progress in its efforts to shore up the balance sheet in the past two years. The sale of non-core assets will continue that trend and management is also using the cash windfall to buy back stock and return the dividend to a new high after the steep cut that was put in place in the early days of the pandemic. A new chief executive officer joined the company this year with a focus on improving safety at the company and driving more efficiency across the asset base.
Suncor operates refineries and a portfolio of about 1,500 Petro-Canada retail locations in addition to the oil sands production sites. The integrated structure historically helped Suncor ride out volatility in the oil market, and that should be the case again in a post-pandemic environment.
Investors can get a 4.7% yield at the current share price. If oil bulls are correct in their predications, Suncor stock looks cheap today.
TC Energy
TC Energy (TSX:TRP) trades for close to $53 per share right now compared to more than $70 at this time last year. The pullback occurred as part of the broader slump in energy infrastructure stocks through the back end of 2022, but TC Energy also had some company-specific issues that upset investors.
The main cloud hanging over the stock is the company’s Coastal GasLink pipeline project that is being built to bring natural gas from producers in northeastern British Columbia to a new liquified natural gas (LNG) facility being built on the B.C. coast.
Pandemic delays, soaring material costs, rising labour expenses, bad weather, and disputes with contractors have all combined to more than double the expected cost of building the pipeline. This is frustrating for investors, but most of the bad news should be in the rearview mirror. TC Energy worked out a cost-sharing agreement with LNG Canada last year, and the pipeline is now more than 80% complete.
Looking ahead, TC Energy’s $34 billion capital program is still expected to drive adequate revenue and cash flow growth to support annual dividend increases of at least 3% over the medium term. The board has raised the payout every year for more than two decades, so the guidance should be solid.
Investors who buy the stock at the current price can get a 7% dividend yield.
The bottom line on top stocks to buy for passive income
Suncor 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 deserve to be on your radar.
