Seniors are searching for ways to get better returns on their savings. One popular strategy involves owning top TSX dividend stocks inside a Tax-Free Savings Account (TFSA).
Impact of inflation
The jump in living costs over the past couple of years is hitting retirees quite hard. Government pensions index payments to inflation, but this might not be enough to cover the monthly increase in a retiree’s budget to maintain living standards. The prices for essentials such as food, gasoline, and insurance, for example, all continue to rise.
Going back to work is an option, but the added income can bump seniors into a higher marginal tax bracket and could also put their Old Age Security (OAS) pensions at risk of a clawback.
Another option to boost income is to shift investments from taxable accounts to a TFSA, if the person has TFSA contribution room available. The TFSA limit in 2023 is $6,500. That brings the cumulative total contribution room to a maximum of $88,000.
Are dividend stocks good investments today?
Owning dividend stocks comes with risks. The share prices can fall below the purchase price, and some stocks don’t recover. In addition, dividends might get cut if a company runs into financial difficulties.
That being said, top Canadian dividend-growth stocks usually bounce back from declines in the share prices and tend to increase their dividends through economic downturns. In the current market conditions, many leading TSX dividend stocks trade at discounted prices and offer yields that are higher than rates offered on Guaranteed Investment Certificates (GICs).
Telus (TSX:T) is reducing its staff count by 6,000 this year, as it adjusts to the impact of soaring interest rates and a downturn in revenue at its Telus International subsidiary. The stock currently trades near $23 compared to more than $28 in April and $34 at the high point in 2022.
Headwinds are expected to persist, but the pullback might be overdone. Telus still expects to generate consolidated operating revenue growth of at least 9.5% this year. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) should increase by at least 7%.
Telus gets most of its revenue from its core mobile and internet businesses. These divisions continue to grow and provide services that households and businesses need, regardless of the state of the economy.
Telus has raised the dividend annually for more than 20 years. Investors who buy Telus stock at the current price can get a yield of 6.3%.
Enbridge (TSX:ENB) is a giant in the North American energy infrastructure industry. The company moves 30% of the oil produced in Canada and the United States and 20% of the natural gas used by American homes and businesses.
Management continues to diversify the asset base with investments in renewable energy in North America and Europe, an oil export terminal in Texas, and a liquified natural gas (LNG) facility that is being built in British Columbia.
In addition, Enbridge recently announced plans to buy three natural gas utilities in the United States for US$14 billion, including debt. The acquisitions will combine with Enbridge’s existing natural gas utilities in Canada to make the company the largest natural gas utility operator in the two countries.
These assets generate steady rate-regulated revenue and cash flow that should support ongoing dividend growth.
Enbridge has raised the dividend in each of the past 28 years. Investors who buy the stock at the current price can get a dividend yield of 7.7%.
The bottom line on top high-yield dividend stocks
Telus and Enbridge are good examples of leading TSX dividend-growth stocks with attractive dividends that should continue to grow. If you have some cash to put to work, these stocks appear cheap right now and deserve to be on your radar.