The market correction is giving self-directed Tax-Free Savings Account (TFSA) investors a chance to buy top TSX dividend stocks at cheap prices for their portfolios targeting passive income and total returns.
TC Energy
TC Energy (TSX:TRP) is a major player in the North American energy infrastructure industry with 93,000 km of natural gas pipelines and more than 650 billion cubic feet of natural gas storage located in Canada, the United States, and Mexico. The company also operates oil pipelines and power-generation facilities.
The stock took a beating over the past 12 months. TC Energy trades near $54 per share at the time of writing compared to about $74 in early June last year.
The pullback in the broader energy sector is partly responsible for the decline, but TC Energy has also struggled with rising costs on a major project. The Coastal GasLink pipeline will now cost at least $14.5 billion, according to the latest update. That’s more than double the initial budget. Ongoing delays could drive the total price even higher, but the end of the pain should be in sight. The project is now 87% complete.
TC Energy expects its $34 billion capital program to drive revenue and cash flow growth in the coming years. This is expected to support planned dividend increases of at least 3% per year over the medium term. TC Energy has increased the dividend annually for more than two decades.
At the time of writing, investors can take advantage of the drop in the share price to pick up a solid 6.8% dividend yield.
Telus
Telus (TSX:T) has also been on a downward trend for most of the past year, although there have been a few nice bounces that didn’t hold. The stock currently trades near $27 compared to more than $34 in April of 2022.
Investors who buy Telus stock at the current level can get a 5.4% dividend yield and look forward to ongoing distribution hikes to boost the return on the initial investment. Telus typically increases the payout by 7-10% per year.
Rising interest rates are pushing up borrowing costs for telecom companies that use debt as part of their funding for capital projects. This can take a bite out of cash that is available for distributions. However, Telus completed most of its copper-to-fibre transition before rates ran up. The company is still spending $2.5 billion this year on projects, including the continued expansion of the 5G network, but capital outlays are down about $1 billion from 2022.
Telus expects free cash flow to hit $2 billion in 2023 and is targeting growth in both consolidated operating revenue and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). The core mobile and internet services revenue stream should be stable during a recession.
Telus has a good track record of growing subsidiaries into large businesses. Telus Health is becoming a global leader in providing digital healthcare and benefits programs. Telus Agriculture and Consumer Goods is focused on making the process of getting food from farms to store shelves more efficient using digital technologies.
The drop in the price of Telus stock appears overdone, considering the positive outlook for the business in 2023.
The bottom line on top TSX dividend stocks
TC Energy and Telus pay attractive dividends that should continue to grow. If you have some cash to put to work, these stocks appear cheap and deserve to be on your radar.
