The market correction hitting TSX dividend stocks is giving investors who missed the rally off the 2020 crash another chance to buy great Canadian dividend payers at cheap prices for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio.
TC Energy
TC Energy (TSX:TRP) owns and operates more than 90,000 km of natural gas pipeline infrastructure and 650 billion cubic feet of natural gas storage capacity in Canada, the United States, and Mexico.
The company is working on a $34 billion capital program that is expected to boost revenue and cash flow enough to support steady dividend increases of at least 3% per year over the medium term. TC Energy has hiked the payout annually for more than two decades.
The share price has been down considerably over the past year. Rising interest rates are to blame for most of the pain. TC Energy uses debt as part of its funding strategy for the capital projects, so higher borrowing costs can eat into profits and reduce cash available for distributions. TC Energy has also had issues with its Coastal GasLink pipeline project, which is now expected to cost at least $14.5 billion — more than double the initial budget. Fortunately, Coastal GasLink is now 98% complete.
TC Energy trades near $47 per share at the time of writing compared to more than $70 at the peak last year.
The drop looks overdone, considering the positive outlook for revenue expansion, as new assets are completed and go into service. Investors who buy TRP stock at the current price can get a 7.9% dividend yield.
BCE
BCE (TSX:BCE) has been a favourite pick among retirees and other income investors for decades. The steep decline in the share price from the 2022 high of around $74 to the current price near $52 has been painful to watch, but the drop looks overdone, and investors can now get a solid 7.5% dividend yield.
High interest rates will push up debt expenses this year, and BCE says adjusted earnings per share will dip a bit compared to 2022. Rates should start to pull back in 2024 or 2025 once the Bank of Canada is convinced it has inflation under control. As such, the earnings hit caused by higher borrowing costs should be relatively short term in nature.
BCE continues to make the investments needed to ensure its customers have world-class communications connections and the broadband they need to work and play. BCE’s fibre-to-the-premises program brings fibre optic lines right to the building of its customers. BCE is also expanding its 5G mobile network. These initiatives are capital intensive, but they should lead to revenue growth and help defend BCE’s competitive position.
Management expects operating revenue and free cash flow to grow in 2023. This should provide support for a dividend increase for 2024. BCE raised the payout by at least 5% annually over the past 15 years.
The bottom line on cheap dividend stocks
TC Energy and BCE pay attractive dividends that should continue to grow. If you have some cash to put to work in a portfolio focused on passive income, these stocks deserve to be on your radar.
