Canadian investors in all stages of their careers are using their Tax-Free Savings Accounts (TFSAs) to put extra cash aside to cover retirement living expenses.
The TFSA limit is $6,500 for 2023 and is likely to increase by at least this amount in 2024. The current cumulative maximum contribution TFSA space is $88,000. That is sufficient to build a meaningful self-directed pension fund.
The market correction is giving investors who missed the rally off the pandemic crash another chance to buy great Canadian dividend stocks at discounted prices and earn attractive yields.
Enbridge
With a current dividend yield of 7.2% Enbridge (TSX: ENB) doesn’t even have to trade at a higher price for investors to get a great return.
Management expects the $17 billion capital program and other growth initiatives to drive steady earnings per share (EPS) and distributable cash flow (DCF) expansion beyond 2025. Enbridge increased the dividend in each of the past 28 years. The last two annual hikes were in the 3% range, and that is likely the rate investors will see over the medium term.
Enbridge is shifting its growth strategy from major new pipelines to other opportunities. The company is investing in oil and natural gas export facilities to capitalize on rising demand for North American energy. In addition, Enbridge is expanding its renewable energy assets.
Looking ahead, Enbridge is positioned well to be a potential leader in new markets for carbon capture and hydrogen. At the same time, the existing oil pipelines, natural gas transmission networks, and natural gas utilities should continue to deliver steady revenue and cash flow.
ENB stock is starting to look oversold at the current price near $49. The shares traded above $59 at the peak last year.
Telus
Telus (TSX: T) trades near $24.50 per share right now compared to more than $34 in the spring of 2022. The drop is probably overdone, considering the solid overall financial guidance the company is providing for 2023.
Telus expects consolidated operating revenue to grow by 9.5% to 11.5% in 2023 compared to last year. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) growth will likely be 7-8%.
These updated targets are lower than the initial guidance Telus provided for the year, and this is why the stock is out of favour. The issues aren’t with Telus, however, but rather its Telus International subsidiary, which is seeing revenue decline more than expected. Telus International provides multi-lingual call centre and IT solutions services to global firms.
The core mobile and internet subscription businesses that drive the bulk of the revenue and earnings at Telus remain strong and should hold up well through a recession.
Investors who buy the dip in Telus stock can get a 5.9% dividend yield at the time of writing. Telus has increased the dividend annually for more than 20 years and typically gives investors an annual hike of 7-10%.
The bottom line on top stocks to start a retirement fund
Enbridge and Telus are good examples of TSX stocks offering high yields and dividends that should continue to grow.
If you are near retirement and want reliable passive income or are in the earlier part of your work life and want to build a self-directed TFSA pension, these stocks look cheap today and deserve to be on your radar.
