Canadian dividend stocks are starting to recover after a rough ride through much of 2023. Investors who missed the bounce in recent weeks are wondering which top TSX dividend stocks are still undervalued and good to buy for a self-directed portfolio targeting passive income.
BCE
BCE (TSX:BCE) trades for close to $51 per share at the time of writing. The stock was as high as $65 in May this year and above $70 at the 2022 peak.
Investors dumped dividend stocks in favour of safer Guaranteed Investment Certificates (GICs) as GIC rates soared in the back half of 2023, supported by rising bond yields that occurred as interest rates moved higher in Canada and the United States. Looking ahead, the GIC party might be over now that markets expect rates to fall next year. In 2024, there could be a reversal of investor funds back into top TSX dividend stocks that still look oversold.
On the operational side, BCE uses debt to finance its large capital program. Higher borrowing costs are hurting profits in 2023. The telecom leader invested roughly $5 billion in 2022 on programs like the 5G network and the extension of fibre optic lines to the doors of its customers. These initiatives should drive revenue growth in the coming years while helping BCE defend its competitive position in the market. If interest rates decline in 2024, the negative impact on profits should ease.
The overall business is performing well, supported by the mobile and internet services divisions. BCE expects total revenue and free cash flow to increase this year, so the dividend should be safe in 2024.
BCE raised the payout by at least 5% in each of the past 15 years. At the current share price, investors can get a 7.5% dividend yield.
TC Energy
TC Energy (TSX:TRP) is best known as a major player in the North American natural gas infrastructure industry, with more than 90,000 km of natural gas pipelines and 650 billion cubic feet of natural gas storage capacity spread out across Canada, the United States, and Mexico.
The company also has oil pipelines and power-generation facilities that round out the revenue stream. That being said, TC Energy is planning to spin off the oil pipeline operations into a separate business to unlock value for investors and raise cash to reduce debt and fund the ongoing capital program.
TC Energy expects 2023 earnings before interest, taxes, depreciation, and amortization (EBITDA) to grow by about 8% compared to last year. The market, however, has focused more on the impact of higher borrowing costs and the problems the company faced in the past couple of years with its Coastal GasLink pipeline development. The project reached mechanical completion in 2023, but the final cost is expected to be around $14.5 billion, which is more than double the original budget. TRP stock trades near $53 compared to $74 at the 2022 high.
TC Energy is doing a good job of monetizing non-core assets to shore up the balance sheet. It sold a stake in some American assets this year for $5.3 billion. Despite the recent challenges, management still expects the capital program to support planned annual dividend growth of 3% to 5%.
TC Energy has increased the dividend every year for more than two decades. Investors can currently get a 7% yield from TRP stock.
The bottom line on top stocks for passive income
BCE and TC Energy pay attractive dividends that should continue to grow. If you have some cash to put to work in a portfolio targeting passive income, these stocks look cheap today and deserve to be on your radar.
