TFSA (Tax-Free Savings Account) investors seeking big passive income on the cheap shouldn’t be afraid to give the higher-yielding corners of the market a look. Of course, it’s always a bad idea to chase any security based solely on the size of its yield. Chasing yield is a dangerous game that could lead to dividend (or distribution) cuts alongside huge capital depreciation. Still, I believe the so-called 4% rule isn’t as useful in today’s high-rate environment.
Why? We’re not in a rock-bottom rate world anymore. We’ve all grown used to low rates, but the times have changed. And with that, investors must be willing to adapt accordingly. For TFSA income investors, higher rates can be a good thing. You can get more income for your investment dollar, and you don’t even need to risk your principal, with investments like GICs (Guaranteed Investment Certificates) offering the most they have in years.
With rates on risk-free debt instruments moving past the 5% mark, dividend yields on certain names have had to rise accordingly. Just as higher rates hit bond prices, driving up their yields in the process, dividend stocks can take a hit, as their yields rise by some amount.
Depending on where you look, certain dividend stocks may yield the most they have in years. Though the firm may have company-specific issues weighing down cash flows, I’d argue that most such names aren’t at risk of slashing payouts.
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TC Energy
First up, we have shares of pipeline play TC Energy (TSX: TRP), which is recovering from multi-year lows. Undoubtedly, shares of the midstream energy firm fell too far, too fast. At writing, shares yield 7.72%. That’s incredibly bountiful, and though the dividend is getting stretched, TC does have a path to recovery that I believe management will take steps to walk down.
Though TC faces headwinds, I continue to view the company favourably for its good mix of cash-generating assets. The company has fallen on hard times, but selling out here may be a big mistake. Though its debt load has caused some credit-rating agencies to take aim, I don’t think long-term income investors need to hit the panic button.
BCE
For those TFSA investors seeking less yield and a bit more stability, look no further than shares of telecom giant BCE (TSX: BCE), which sports a dividend yield of 6.9%. Like TC Energy, BCE is fresh off multi-year depths and could be in a spot to recover a considerable amount of ground over the coming months.
The telecom titan’s media segment has been a prominent sore spot. Still, I like BCE for the wireless business, which will still benefit from the long-term rise of 5G tech. The stock trades at 20.2 times trailing price to earnings, which is not bad for such a dividend heavyweight.
Verizon
If a nearly 7% yield isn’t good enough, Verizon (NYSE: VZ) shares currently offer a 7.9% yield at the time of writing. Undoubtedly, you’ll need to wander south of the border to buy the stock. However, it’s worthwhile if you’re looking for an unbelievable bargain. Shares currently go for an absurd 6.7 times trailing price to earnings!
Verizon stock looks like a value trap, however, as the falling knife has continued to tumble over the last few quarters. It recently fell to lows not seen in more than a decade. Indeed, shares are in a historical funk. And the American telecom scene seems like a tough place to be right now. In any case, next-level value and a colossal yield may be worth grabbing if you’re feeling brave.
