The pullback in the share prices of top Canadian dividend stocks is giving pensioners and other investors seeking reliable and growing passive income a chance to get great yields on their retirement savings.
BCE
BCE (TSX:BCE) raised its dividend by at least 5% annually over the past 15 years. The company is targeting revenue and free cash flow growth in 2023, so investors should see another decent dividend hike for 2024.
The stock price has taken a hit over the past year, despite solid results. Part of the negative investor sentiment is likely due to the fact that income investors can now get a yield of 5% on a Guaranteed Investment Certificate (GIC) from some financial institutions. This is compared to BCE’s current dividend yield of about 6.4%, so some people might have shifted their funds to fixed-income alternatives. One thing to keep in mind, however, is that dividend increases boost the yield on the initial investment in the stock, so the total yield over time can be much higher than that provided by the GIC.
BCE is also impacted by the jump in interest rates over the past year. The company uses debt as part of its funding mix to pay for capital programs. Rising interest expenses are going to take a bite out of earnings. Finally, BCE’s media division is seeing a decline in ad spending. In an effort to stabilize the group, BCE recently announced a round of job cuts and plans to sell or shut down some radio stations.
Ongoing regulatory uncertainty is also a cloud currently hanging over telecom stocks.
Investors need to keep an eye on these near-term issues, but the extent of the drop in the share price looks overdone.
TD Bank
TD (TSX:TD) trades for close to $80 at the time of writing compared to $93 in February and $108 in early 2022.
The pullback in bank stocks is giving investors who missed the big rebound off the 2020 market crash a good opportunity to buy the Canadian banks at cheap prices and get good yields.
TD finished the fiscal second quarter (Q2) 2023 with a common equity tier one (CET1) ratio of 15.3%. This is the highest among the Canadian banks and well above the 11% required by regulators. TD built up the excess cash hoard for its proposed takeover of First Horizon, a U.S. regional bank with more than 500 branches. Management at TD recently decided to cancel the planned all-cash acquisition citing regulatory hurdles. As a result, the bank is now flush with funds to help it ride out any potential market turbulence. TD could also raise the base dividend, pay out a bonus dividend, buy back stock, or find another takeover target.
The sharp rise in interest rates in Canada and the United States is putting pressure on commercial and residential borrowers. TD has extensive operations in both countries and loan losses will likely increase in the coming quarters. Fears about how bad things will get might be overblown, however, and the drop in TD’s share price is probably exaggerated.
At the time of writing, TD offers a 4.8% dividend yield.
The bottom line on top stocks for passive income
Additional downside is certainly possible, but BCE and TD already look cheap and offer 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.
