Retirees and other investors seeking reliable passive income are looking for top TSX dividend stocks that might be undervalued after the market correction that occurred in the past year. TC Energy (TSX:TRP) and TD Bank (TSX:TD) trade significantly below their 2022 highs right now and could be interesting picks.
TC Energy
TC Energy started 2022 on a roll with the stock rising to a high of $74, but the wheels started to fall off after the price of oil peaked last June. TRP stock then went into a steep slide for several months, eventually bottoming out around $51 in March this year. Bargain hunters have since emerged in the past few weeks, but the stock still only trades around $56.50 at the time of writing.
TC Energy is largely a natural gas transmission and storage business with more than 93,000 km of natural gas pipelines and 650 billion cubic feet of natural gas storage capacity located in Canada, the United States, and the Caribbean. Power-generation facilities and oil pipelines round out the asset base.
A drop in oil and natural gas prices should have a limited direct impact on TC Energy’s revenue stream. The company isn’t a producer. It simply moves the fuels from the production sites to storage locations, utilities, export terminals, or refineries and charges a fee for providing the service.
The extended pullback in the share price is likely due to problems on a major project. TC Energy is building the Coastal GasLink pipeline that will move natural gas from producers in northeastern British Columbia to a new liquified natural gas (LNG) facility. Costs ballooned in the past few years due to pandemic delays, soaring labour and material expenses, bad weather, and conflicts with contractors. The latest update puts the cost around $14.5 billion — more than double the original estimate.
Despite the headaches on the Coastal GasLink development, TC Energy still expects the broader $34 billion capital program to drive enough revenue and cash flow growth to support annual dividend increases of at least 4% through 2028. This is good news for dividend investors.
At the time of writing, the stock provides a 6.6% dividend yield.
TD Bank
TD trades for close to $82 per share at the time of writing. That’s down from $93 in February.
The sharp decline occurred after a number of bank failures in the United States and Europe rattled markets and triggered a selloff in bank stocks. TD is a Canadian bank, but it has significant operations in the United States and is trying to complete its US$13.4 billion takeover of First Horizon, a U.S. regional bank.
First Horizon stock trades about 28% below the price TD initially agreed to pay, so the market thinks the deal is either in trouble or will be adjusted.
Ongoing volatility in the bank sector should be expected in the coming months and TD stock could certainly retest the 12-month lows. However, investors with a buy-and-hold strategy might consider nibbling on the shares near the current level. TD has a great track record of dividend growth and provides a decent 4.7% dividend yield right now, so you get paid well to ride out the turbulence.
Is one a better buy for dividends today?
TC Energy and TD pay attractive dividends that should continue to grow.
The pipeline giant offers a better yield with good dividend-growth guidance. Investors seeking passive income might consider making TC Energy the first pick. If you are more focused on long-term total returns, TD looks cheap right now.
I would probably split a new investment between the two stocks.
