Top Canadian dividend stocks have taken a hit over the past year. Retirees who can handle some volatility now have a chance to buy great TSX dividend stocks at cheap, discounted prices for their self-directed Tax-Free Savings Account (TFSA) portfolios targeting passive income.
BCE
BCE (TSX:BCE) has been a popular pick among retirees for decades. The communications giant generates most of its revenue from essential mobile and internet service subscriptions and enjoys a solid balance sheet that enables management to make the investments required to drive future revenue growth and defend the wide competitive moat.
BCE stock trades near $56.50 at the time of writing compared to more than $73 at one point last year. The pullback is largely due to the impact of rising interest rates. A slump in advertising sales in the media division is also weighing on the stock.
BCE uses debt as part of its funding strategy to finance its capital program. The company spent roughly $5 billion in 2022 on projects. Higher borrowing costs can reduce profits and cut into cash flow available for distributions.
Headwinds are expected to persist, and BCE will likely report lower year-over-year profits in 2023. Total revenue and free cash flow, however, are projected to increase this year, driven by ongoing strength in the mobile and internet businesses.
At this point, the pullback looks overdone. Investors who buy BCE stock at the current level can get a 6.9% dividend yield. BCE increased the dividend by at least 5% in each of the past 15 years.
TC Energy
TC Energy (TSX:TRP) trades close to $49 per share at the time of writing. The stock was above $70 at the 2022 high.
Energy infrastructure companies also have large developments with projects that can take years to complete. As with BCE, TC Energy uses debt as part of its funding strategy, so higher borrowing costs can hurt profits and dent the cash flow needed to cover dividends.
TC Energy’s Coastal GasLink pipeline is over budget, with total costs expected to be at least $14.5 billion when the pipeline reaches completion later this year or in early 2024. The original budget was around $6 billion, so there have been some unexpected negative surprises. Pandemic delays, soaring material and labour costs, bad weather, and conflicts with contractors have all impacted the project. Fortunately, the pipeline is more than 90% complete, and management still expects the overall $34 billion capital program to generate adequate cash flow to support planned dividend increases of 3-5% per year over the medium term.
Investors who buy the stock right now can get a 7.6% dividend yield. TC Energy has increased the dividend annually for more than two decades.
The bottom line on top stocks for passive income
BCE and TC Energy pay attractive dividends that should continue to grow. If you have some cash to put to work in a TFSA focused on passive income, these stocks deserve to be on your radar.
