The Bank of Canada is increasingly expected to begin lowering interest rates in 2024. When that happens, top Canadian dividend stocks that sold off as rates rose could catch a new tailwind and surge higher.
Buying high-quality TSX dividend stocks on dips can boost long-term returns on a self-directed Registered Retirement Savings Plan (RRSP) portfolio.
TC Energy
TC Energy (TSX:TRP) trades near $50 per share at the time of writing compared to more than $70 at the high point last year.
The stock’s decline is due to a combination of surging interest rates and the impact of higher costs on a major project. TC Energy uses debt as part of its funding strategy to finance growth initiatives. Pipeline developments can take years to complete and sometimes cost billions of dollars. Rising borrowing expenses can hit profits and reduce cash that is available for distributions.
TC Energy recently achieved mechanical completion on its Coastal GasLink pipeline that will carry natural gas from producers to a new liquified natural gas (LNG) export facility being built in British Columbia. The cost more than doubled to roughly $14.5 billion over the past few years. As a result, TC Energy has spent much of 2023 monetizing non-core assets to shore up the balance sheet and prepare to move ahead on the rest of the capital program.
The company has already raised $5.3 billion through the sale of a stake in some American assets. TC Energy intends to spin off the oil pipelines business in 2024 and is evaluating the sale of other assets, including the portfolio in Mexico.
The market might be too focused on the Coastal GasLink challenges, as the overall business is performing well. TC Energy just raised its guidance for 2023 and 2024 and still expects the growth program to drive adequate revenue and cash flow expansion to support planned annual dividend increases of 3-5% over the medium term.
TC Energy has increased the dividend annually for more than two decades. At the current share price, investors can get a 7.4% dividend yield.
Telus
Telus (TSX:T) trades for close to $24 at the time of writing compared to $34 at its 2022 peak. The drop appears overdone, given the strength of the core mobile and internet subscription businesses. These are essential services needed by companies and households, regardless of the state of the economy.
Telus reduced its staff count by 6,000 this year to streamline the business and adjust to macroeconomic headwinds that have impacted the Telus International subsidiary. The division accounts for a small part of the overall earnings at Telus, but management had to reduce guidance for the year after TI’s rough run through the first half of 2023.
Despite the headwinds, Telus is still expecting to generate consolidated revenue growth of at least 9.5% in 2023 and is targeting growth in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of 7% or 8%. That’s a decent outlook in the current economic climate.
Telus has increased the dividend annually for more than 20 years. 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 self-directed Registered Retirement Savings Plan portfolio, these stocks look cheap today and deserve to be on your radar.
