Pensioners and other self-directed Tax-Free Savings Account (TFSA) investors are searching for good Canadian dividend-growth stocks to add to their portfolios focused on generating tax-free passive income.
The pullback in the share prices of several leading TSX dividend stocks is giving investors a chance to pick up high dividend yields and potentially benefit from nice capital gains on a recovery.
Telus
Telus (TSX:T) is a major Canadian communications company with wireless and wireline networks that provide mobile and internet services across the country. Telus also has interesting subsidiaries focused on healthcare, agriculture, and global IT services.
Telus trades near $23.50 at the time of writing compared to $34 at the high point in 2022. The decline over the past two years is largely due to rising interest rates, although some troubles at the Telus International subsidiary put added pressure on the stock last year. Telus uses debt to fund part of its investment in network expansion. As borrowing costs rise, profits take a hit. The international business that provides multi-lingual call centre and IT services saw revenue plunge in the first half of last year.
Telus just reported full-year 2023 results. Consolidated operating revenue rose 9.4% compared to 2022, and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) increased 7.6%, so it was a solid performance despite the various headwinds. As a result, the stock is likely oversold right now.
Telus has increased the dividend annually for more than two decades. At the current share price, investors can get a 6.3% dividend yield.
TC Energy
TC Energy (TSX:TRP) trades near $50.50 per share at the time of writing, compared to the 12-month low around $44 and a high of $74 at one point in 2022.
Rising interest rates are responsible for most of the drop. Like Telus, TC Energy uses debt to fund part of its large capital program, so higher borrowing costs will eat into profits. TC Energy also ran into surging costs on a major project. Fortunately, the Coastal GasLink pipeline reached mechanical completion last year. The final tally is expected to be about $14.5 billion, which is more than double the original budget.
TC Energy did a good job of monetizing non-core assets last year to shore up the balance sheet. The company intends to spin off the oil pipelines business in 2024, along with pursuing other asset sales. TC Energy’s overall business performed well in 2023. The company is expected to report comparable EBITDA growth of about 8% for the year compared to 2022. Guidance for 2024 is expected to be for EBITDA growth of 5-7%.
TC Energy has increased the dividend annually for more than 20 years. Investors who buy the stock at the current level can get a 7.4% dividend yield.
The bottom line on top stocks for TFSA passive income
Telus and TC Energy pay attractive dividends that should continue to grow. Ongoing volatility should be expected, but these stocks look cheap today and deserve to be on your radar for a TFSA targeting high-yield passive income.
