Canadian retirees want to get better returns on their savings to help offset the impact of inflation. One popular strategy to boost passive income involves owning top TSX dividend stocks inside a Tax-Free Savings Account (TFSA).
Buying stocks on dips is a contrarian move, but the decision can secure a higher yield and potentially set the portfolio up for decent capital gains on a rebound. In uncertain economic times, it makes sense to search for stocks that have a long track record of dividend growth.
TC Energy
TC Energy (TSX:TRP) is a major player in the North American natural gas transmission sector, with more than 93,000 km of natural gas pipeline infrastructure and 650 billion cubic feet of natural gas storage capacity. In addition, TC Energy has oil pipelines and power-generation facilities.
TRP stock took a big hit over the past 18 months, as investors bailed out of companies that use a lot of debt to fund their growth. In addition, TC Energy has struggled with soaring expenses on a large development.
The company builds pipelines that can cost billions of dollars and take years to complete before they go into service to generate revenue. A good example is the Coastal GasLink project that was announced in 2018 and recently reached mechanical completion at an estimated cost of about $14.5 billion.
TC Energy uses debt to fund part of its capital program. Higher borrowing costs hurt profits and can reduce cash that is available for dividends. In the case of Coastal GasLink, the project’s final cost will be more than double the initial estimate.
Management has done a good job of raising cash through some non-core asset sales and intends to spin off the oil pipeline business to unlock value and strengthen the balance sheet. The company secured $5.3 billion through divestments in 2023 and expects to raise another $3 billion next year.
Looking ahead, the ongoing capital program and solid performance from the existing asset base are expected to support planned dividend increases of at least 3% per year over the medium term.
TC Energy stock trades near $51.50 at the time of writing compared to more than $73 at the high point in 2022.
The worst of the troubles should be in the rearview mirror. Investors who buy the stock at the current level can get a 7.2% dividend yield. TC Energy has increased the dividend annually for more than 20 years.
BCE
BCE (TSX:BCE) trades for close to $55 at the time of writing. The stock was $65 in May this year. The decline is largely due to rising interest rates. As with TC Energy, BCE uses debt to fund part of its capital program. Building cross-country mobile and fibre networks is expensive. Purchasing spectrum from the government is also costly. These initiatives, however, help BCE drive long-term revenue growth and enable the business to defend its competitive position in the Canadian communications market.
Adjusted earnings per share are expected to dip in 2023 as a result of higher borrowing costs, but BCE says overall revenue and free cash flow should be higher than last year. This should support the dividend heading into 2024.
BCE increased the distribution by at least 5% annually over the past 15 years. Investors who buy the pullback can now get a 7% dividend yield.
The bottom line on top TSX dividend stocks
TC Energy and BCE are good examples of established Canadian companies paying attractive dividends that should continue to grow. If you have some cash to put to work in a portfolio targeting passive income, these stocks still look cheap today and deserve to be on your radar.
