A rally over the past few months wiped out a number of good deals that were available late last year. However, self-directed Tax-Free Savings Account (TFSA) investors can still find undervalued Canadian dividend stocks to add to their portfolios targeting passive income and total returns.
Enbridge
Enbridge (TSX:ENB) trades near $46.50 at the time of writing compared to $59 at the high point in 2022.
The drop in the share price is probably overdone. Rising interest rates are largely responsible for the decline in the stock rather than any operational issues with the company. Enbridge delivered solid results in 2023 that essentially matched the 2022 numbers. For 2024, management expects distributable cash flow (DCF) to rise by about 3%. This will help support the recent 3.1% dividend increase the board put in place for this year. The dividend has risen annually for the past 29 years.
Enbridge has a large capital program and is working to close US$14 billion in acquisitions this year, which would potentially boost the DCF growth.
At the time of writing, investors can get a 7.8% dividend yield from ENB stock.
BCE
BCE (TSX:BCE) is another dividend-growth stock that now offers a very high yield after an extended pullback in the share price. Canada’s largest communications provider cut 1,300 positions last year and recently announced it will reduce staff count by another 4,800 jobs amid a streamlining effort to lower costs, largely in the media operations. Ad spending has declined on television and radio as customers reduce marketing budgets or shift advertising to digital alternatives.
High interest rates are also making debt more expensive. BCE borrows cash to partly fund its capital programs. Rising debt expenses put a dent in profits and can reduce cash available for distributions. Investors will have to be patient, but BCE’s dividend increase of about 3% for 2024 is a signal that management is still comfortable with the long-term outlook for the overall business. BCE gets most of its revenue from its core mobile and internet subscription groups.
The company delivered on its guidance for 2023. This year will see free cash flow slip a bit due to the charges connected to the layoffs, but 2025 should be better.
Investors who buy the stock at the current level can get a 7.9% dividend yield.
The bottom line on top TSX dividend stocks
Enbridge and BCE pay attractive dividends that should continue to grow. If you have some cash to put to work in a TFSA, these stocks deserve to be on your radar. The Bank of Canada is expected to start cutting interest rates at some point in 2024. As soon as that happens, these stocks could pick up a nice tailwind.
