Retirees and other investors who want to generate decent passive income on their savings can take advantage of the pullback in top TSX dividend stocks to get great dividend yields that are above Guaranteed Investment Certificate (GIC) rates.
TC Energy
TC Energy (TSX:TRP) has taken a beating over the past year. The stock currently trades near $45 per share compared to more than $70 last summer.
Soaring interest rates and cost pressures on a major project have combined to force management to make some drastic changes to shore up the balance sheet and raise funds to finance ongoing growth initiatives.
TC Energy’s 670 km Coastal GasLink project is 91% complete as of the Q2 2023 earnings release. The company expects mechanical completion to occur by the end of the year. Total costs are expected to be at least $14.5 billion compared to the original 2018 estimate of around $6.2 billion. That’s frustrating for investors, but there is now light at the end of the tunnel.
Stock spinoff ahead
TC Energy recently announced a sale of 40% of its interest in Columbia Gas and Columbia Gulf for $5.2 billon. Management is also splitting TC Energy into two companies. A plan to spin off the liquids pipeline operations into a new firm by the second half of next year could unlock value for shareholders if the market determines that the sum of the parts is worth more than all of the assets bundled together, as they are currently. The remaining natural gas and power generation assets will stay as part of TC Energy.
In the Q2 earnings release, the company said it still expects comparable earnings before interest, taxes, depreciation, and amortization (EBITDA) to grow by 5% to 7% in 2023 compared to last year. Comparable earnings will likely be in line with 2022 results.
TC Energy says dividend growth is still expected to be 3% to 5% per year over the medium term, supported by the $34 billion capital program. At the time of writing, investors can get a dividend yield of 8.2% from TRP stock.
A dividend yield that is this high can mean the market expects the distribution to get cut. Management is sticking to its guidance for distribution expansion. TC Energy has increased the payout annually for more than two decades, but investors need to be aware of the risk.
BCE
BCE (TSX:BCE) trades near $57 per share at the time of writing compared to more than $70 at the peak last year. As with TC energy, the drop has occurred as investors worry about rising borrowing costs for capital projects.
BCE spent roughly $5 billion in 2022 on capital projects and upgrades and continues to expand the 5G and fibre optic networks. These initiatives will give BCE opportunities to drive future revenue growth while helping to protect the firm’s competitive moat in the Canadian communications sector.
Investors will likely see adjusted earnings slip in 2023 compared to last year, but overall revenue and free cash flow are expected to rise. This should support another solid dividend increase for 2024. BCE raised the payout by at least 5% in each of the past 15 years.
At the time of writing, the stock provides a 6.8% dividend yield.
The bottom line on top stocks for passive income
TC Energy and BCE pay attractive dividends that should continue to grow. If you have some cash to put to work in a portfolio targeting passive income, these stocks look cheap right now and deserve to be on your radar.
