Should You Buy TC Energy or Telus?

Both stocks offer high dividend yields and potential dividend growth in the future.

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Canadian stocks have been rising this year, supported by solid quarterly performances at prominent companies and an improving macro environment, with inflation showing signs of easing. The TSX S&P Composite Index is up 2.7%.

However, several economists predict the global economy will slow down this year because of monetary tightening. The ongoing geopolitical tensions could also hurt economic growth. So, equity markets could be volatile in the near term.

Given the uncertain outlook, investors should consider buying quality dividend stocks to stabilize their portfolios and earn reliable passive income. Thanks to their regular payouts, dividend stocks are less susceptible to market volatility.

TC Energy (TSX:TRP) and Telus (TSX:T) are both popular choices among Canadian investors. Let’s look at each stock to determine the better buy.

TC Energy stock

TC Energy transports oil and natural gas across North America through its pipeline network. It has also invested in seven power-producing facilities, with a total capacity of 4.3 gigawatts. Last month, the company reported an excellent fourth quarter, with its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) and adjusted EPS (earnings per share) growing by 16% and 22%, respectively.

The company put around $5.3 billion of projects into service last year, expanding its asset base. Besides, its operational excellence and high utilization rate boosted its financials. Meanwhile, the Calgary-based energy company has planned to invest $8.5 billion to $9 billion this year and put around $7 billion of projects into service. Amid these expansion initiatives, the management expects its 2024 adjusted EBITDA to be $11.2 billion to $11.5 billion, with the midpoint representing a 3.2% growth from the previous year.

Further, TC Energy is working on spinning off its Liquids Pipelines segment to enhance shareholders’ value. So, excluding its Liquids Pipeline segment, the company hopes to grow its adjusted EBITDA at a CAGR (compound annual growth rate) of 6% through 2026. Amid these expectations, the company expects to raise its dividends by 3% to 5% annually in the coming years. Notably, it has been raising dividends since 2000 at a CAGR of 7% and currently offers a forward dividend yield of 7.07%.

Telus stock

Telus, one of Canada’s three top telecom players, would be another top dividend stock to have in your portfolio. It gained 404,000 customers in its most recent quarter, representing a 34% increase over the previous year. Management credited the increase to solid operational execution and the strong demand for its bundled product offerings across fixed and mobility services. Its churn rate for the year stood at 0.87%, marking the 10th consecutive year of less than 1% of churn rate.

Thanks in part to these solid operating numbers and strong performances from Telus Health and Telus International segments, the company’s fourth-quarter operating revenue and adjusted EBITDA grew by 2.6% and 9.4%, respectively. Further, the growing demand for telecommunication services has created a long-term growth potential for the company. The company is expanding its 5G and broadband infrastructure, which could continue to drive positive results in the coming quarters. Meanwhile, the company’s management expects its 2024 revenue and adjusted EBITDA to grow by 2% to 4% and 5.5% to 7.5%, respectively.

Telus has been raising its dividends for the past 20 years. It currently pays a quarterly dividend of $0.3761/share, with its forward yield at 6.45%. Given its healthy growth prospects, the company expects to increase its dividends at an annualized rate of 7% to 10% through 2025.

Investors’ takeaway

Although both companies offer high dividend yields and are optimistic about maintaining their dividend growth in the coming years, I am more bullish on Telus because of the growing demand for telecom services. Its other business segments are also growing at a healthy rate, making it an attractive buy.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Rajiv Nanjapla has no position in any of the stocks mentioned. The Motley Fool recommends TELUS. The Motley Fool has a disclosure policy.

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