The latest pullback in the market is giving dividend investors who missed the bounce off the 2020 market crash another chance to buy top TSX dividend stocks at cheap prices for their self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Pan (RRSP) portfolios.
TC Energy
TC Energy (TSX:TRP) stock is down about 27% in the past year and way off the 2022 high of close to $74.
Steep increases in interest rates by the Bank of Canada and the U.S. Federal Reserve are largely responsible for the decline in the share price. Energy infrastructure companies, like TC Energy, have big development programs with projects that take years to build and cost billions of dollars. Companies use debt as part of their funding plan on the capital initiatives. The jump in borrowing costs can drive up debt expenses, putting profits under pressure. This can impact the amount of cash that is available for dividends.
TC Energy’s total capital program is about $34 billion. The Coastal GasLink pipeline that was initially budgeted for about $6 billion will now cost at least $14.5 billion. Pandemic delays, higher material costs, increased labour expenses, bad weather, and disagreements with contractors have all hit the project. Fortunately, Coastal GasLink is more than 90% complete.
TC Energy is addressing balance sheet concerns that are hurting the share price. Management recently monetized part of the American assets to raise $5.2 billion. The company intends to spin off the oil pipelines business and is evaluating the potential sale of part of some Canadian assets.
TC Energy still expects the capital program to drive adequate cash flow to support planned annual dividend increases in the 3-5% range over the medium term. The board has increased the payout annually for more than 20 years, so there is a good track record of distribution growth.
At the time of writing, investors can get a 7.5% dividend yield.
Telus
Telus (TSX:T) recently announced plans to cut 6,000 jobs. The parent firm will see its headcount reduced by 4,000, while the Telus International subsidiary will reduce staff by about 2,000.
The decision is a move to adjust to weaker macroeconomic conditions and higher debt costs caused by rising interest rates. Telus International is seeing a drop in demand for its global call centre and IT services. At home, Telus is still spending $2.6 billion this year on capital projects, including the continued expansion of the 5G mobile network.
Telus stock trades near $23.50 at the time of writing compared to more than $34 at the high point last year. Ongoing challenges are expected, but the pullback appears overdone.
Telus expects the core mobile and internet subscription businesses to drive up consolidated operating revenue by at least 9.5% this year. Adjusted earnings before interest, taxes, depreciation, and amortization will grow by at least 7% compared to 2022.
Telus has also increased its dividend annually for more than two decades. Investors who buy the stock at the current level can get a 6.2% dividend yield.
The bottom line on top TSX dividend stocks
TC Energy and Telus pay attractive dividends that should continue to grow. If you have some cash to put to work in a TFSA or RRSP, these stocks look cheap today and deserve to be on your radar.
