Better Buy for TFSA Passive Income: Telus Stock or TD Bank?

TD and Telus look cheap today. Is one stock now oversold?

| More on:
stock analysis

Image source: Getty Images

Telus (TSX:T) and TD Bank (TSX:TD) are trading at heavy discounts compared to their 2022 highs. Investors who missed the rally off the 2020 market crash are wondering if Telus stock or TD stock is now undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) focused on passive income.


Telus trades for close to $23 per share at the time of writing. The stock was as high as $34 at one point last year.

The drop has largely occurred as a result of rising interest rates. Communications companies have large capital programs to upgrade existing networks and build out new infrastructure, as they strive to meet growth in bandwidth demand. Telus uses debt as part of its funding strategy to finance its capital investments. As borrowing costs increase, profits can take a hit, and there could be a drop in cash flow available for distributions to shareholders.

On the operational side, Telus is still seeing solid growth in its core mobile and internet businesses, but the Telus International subsidiary that provides multi-lingual and IT services to global firms is struggling. As a result, Telus reduced its guidance for 2023 and announced it is cutting 6,000 jobs.

Despite the headwinds, Telus still expects consolidated operating revenue to top 2023. Dividends from the company have increased annually for more than two decades. At the time of writing, Telus stock provides a 6.3% dividend yield.

TD Bank

TD trades for close to $83 at the time of writing. The stock was as high as $93 earlier this year and hit $108 in the first part of 2022. As with Telus, the pullback is broadly due to soaring interest rates, but for different reasons.

The Bank of Canada and the United States Federal Reserve are trying to get inflation back down to their 2% target. In Canada, inflation soared to 8% last year. The August 2023 number came in at 4%. Central banks raise interest rates as a tool to cool off the economy and loosen up the tight jobs market. The idea is to make borrowing more expensive so that consumers have less excess cash to splurge on goods and services.

Investors are concerned that the central banks will have to force a deep recession to achieve their 2% inflation targets. If rates go too high and stay elevated for too long, the impact on banks could be messy. TD and its peers are already increasing provisions for credit losses as commercial and retail clients struggle to cover rising loan and mortgage costs. If a severe recession occurs and unemployment spikes, there could be a tidal wave of defaults.

TD remains a very profitable business in the current environment, and the bank is sitting on a mountain of excess cash that will help it ride out economic turbulence. The dividend should continue to grow and now offers a 4.6% yield.

Ongoing volatility should be expected, but buying TD stock on big dips has historically proven to be a savvy move for patient investors.

Is one a better pick for passive income?

Telus and TD pay attractive dividends that should continue to grow. If you have some cash to put to work, both stocks look cheap today and deserve to be on your radar.

That being said, Telus has the better yield right now and might be more oversold than TD, so I would probably make the communications provider the first choice for a portfolio targeting passive income.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

The Motley Fool recommends TELUS and Telus International. The Motley Fool has a disclosure policy. Fool contributor Andrew Walker owns shares of Telus.

More on Dividend Stocks

Payday ringed on a calendar
Dividend Stocks

3 Top TSX Passive-Income Stocks That Pay Out Every Month

Here are some of the best TSX stocks for passive monthly income. Investors should explore to see if they're a…

Read more »

edit Sale sign, value, discount
Dividend Stocks

3 Remarkably Cheap TSX Stocks to Buy Right Now

These three cheap TSX stocks are some of the best buys on the TSX, and yet their share price is…

Read more »

think thought consider
Dividend Stocks

This Dividend Stock Could Create $1,353 in Passive Income in 2024

This dividend stock can create massive passive income from two sources, so don't miss out before a recovery in 2024!

Read more »

Increasing yield
Dividend Stocks

TFSA Investors: Buy This Top Bank Stock for High-Yielding Dividends

Generate a superior passive-income stream by investing in this high-yielding dividend stock from Canada’s Big Six banks.

Read more »

grow money, wealth build
Dividend Stocks

2 of the Best TSX Dividend Stocks I Plan on Holding Forever

High-yield TSX dividend stocks, such as Enbridge, offer you tasty yields and trade at significant discounts to consensus price targets.

Read more »

Family relationship with bond and care
Dividend Stocks

TFSA Investors: 3 Cheap Canadian Stocks for Retirees

These three Canadian stocks are super cheap for retirees looking for a great buy that will last the test of…

Read more »

calculate and analyze stock
Dividend Stocks

CPP Disability Benefits: Here’s How Much You Could Get

Not everybody can get CPP disability benefits. If you want some passive income, consider investing in Royal Bank of Canada…

Read more »

growing plant shoots on stacked coins
Dividend Stocks

Boosting Your Monthly Income: TSX Stocks That Deliver

Dividend investing can boost regular or active incomes, especially select TSX stocks that pay monthly dividends.

Read more »