Canadian pensioners are looking for ways to earn better returns on their savings to help offset the impact of a constantly rising cost of living. One popular strategy to boost income without getting hit with a higher tax bill is to hold the investments inside a self-directed Tax-Free Savings Account.
The pullback in the share prices of several top TSX dividend stocks is driving yields to very attractive levels and could deliver decent capital returns on the next recovery.
Bank of Montreal
Bank of Montreal (TSX:BMO) trades near $115 per share at the time of writing. That’s up from the October low of around $103, but still down from the $152 the stock hit in March last year.
The company completed its US$16.3 billion acquisition of Bank of the West year right before the stock prices of American regional banks plunged on fears of widespread failures after two high-profile California-based regional banks went bust. The sector still hasn’t recovered, and investors might be punishing BMO stock for potentially overpaying for Bank of the West.
Looking ahead, the bank says it expects to deliver better synergies than anticipated by acquiring Bank of the West, and the deal gives Bank of Montreal a strong foothold in the California market.
Bank of Montreal just increased the dividend for the second time in 2023. Investors who buy BMO stock at the current level can get a 5.25% dividend yield. The bank has paid a dividend every year since 1829.
Telus
Telus (TSX:T) trades near $25 at the time of writing compared to $34 at the peak in 2022. The big decline is probably overdone, considering the strong ongoing performance of the core mobile and internet services businesses in Canada.
Telus reduced its financial guidance in 2023 after it became evident that a subsidiary, Telus international was struggling with declining revenue. The group provides multi-lingual call centre and IT services to global firms. Telus trimmed its headcount by 6,000 in 2023 to adjust to the changing market conditions. This should help support solid results next year.
Consolidated revenue is still expected to increase by at least 9.5% in 2023. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) will rise by at least 7%. That’s still pretty good in a tough economic environment.
Telus has increased the dividend annually for more than 20 years. The current yield is about 6%.
The bottom line on top TSX dividend stocks
Bank of Montreal and Telus pay attractive dividends that should continue to grow. If you have some cash to put to work in a TFSA focused on passive income, these stocks still look cheap today and deserve to be on your radar.
