2 Top TSX Dividend Stocks to Buy Now and Hold for Decades

These top TSX dividend stocks have raised their distributions annually for more than 20 years and now offer high yields.

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A handful of top Canadian dividend stocks are trading at depressed prices and now offer high yields for investors focused on generating passive income inside a Tax-Free Savings Account (TFSA).

Buying stocks when they are out of favour requires a contrarian strategy, but the long-term rewards can be significant.

TC Energy

TC Energy (TSX:TRP) stock isn’t as cheap as it was a few months ago, but investors can still get a 7% dividend yield, and there could be more upside on the way. TRP trades for close to $54 at the time of writing. This is up more than 20% from the 12-month low, although still way off the $74 the stock reached in June 2022.

The downward trend through the second half of 2022 and most of 2023 was largely caused by rising interest rates in Canada and the United States. TC Energy has a large capital program and borrows money to fund part of the growth initiatives. Higher borrowing costs drive up expenses and eat into profits while reducing cash that is available for distributions.

Late last year, the market started to bet that interest rates would begin to fall again in 2024 as the central banks in Canada and the United States get inflation under control. This put a new tailwind behind the stock. A drop in interest rates tends to be positive for pipeline companies.

TC Energy also had issues with soaring costs on its Coastal GasLink pipeline over the past couple of years. The company reached mechanical completion on the project late in 2023, so the worst of the pain is in the rearview mirror. Management monetized assets last year to reduce debt and shore up the balance sheet. The process continues in 2024 and will help position TC Energy for continued growth.

Overall, the company delivered strong results in 2023 and the board increased the dividend by 3.2% for 2024. Investors have received a dividend boost annually for more than two decades, so the payout should be safe.

Telus

Telus (TSX:T) trades for less than $22 at the time of writing compared to $34 at one point in 2022. As with TRP, a big part of the decline can be attributed to higher interest rates, although Telus also had some revenue issues last year in its Telus International subsidiary.

Telus cut staff by 6,000 positions in 2023 to adjust to the shift in market conditions. The reduced expense base will help support operational earnings this year. Telus International accounts for a relatively small part of overall earnings, so the market reaction to the troubles at the subsidiary might have been overdone.

Recent weakness in the stock is likely due to investor concerns that the government is once again targeting large communications companies. In short, the government wants Telus to give small competitors access to the company’s lines that connect to customer homes and offices. Running fibre optic lines to clients is very expensive, so it doesn’t make much sense for the company to spend billions of dollars on the initiatives if it then has to give a competitor access to the customer through the line.

With an election due by late 2025, this will likely remain a hot political topic, and investors should expect it to be a headwind.

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That being said, Telus remains a strong business that generates reliable cash flow from essential mobile and internet services. In addition, Telus doesn’t have a media business, so it isn’t facing some of the challenges that are impacting its large peers.

The stock is likely oversold right now, and Telus has a great track record of dividend growth. Investors who buy Telus shares at the current level can get a 6.9% dividend yield.

The bottom line on top stocks for passive income

TC Energy and Telus pay attractive dividends that should continue to grow. If you have some cash to put to work in a TFSA focused on passive income, these stocks deserve to be on your radar.

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.

The Motley Fool recommends TELUS and Telus International. The Motley Fool has a disclosure policy. Fool contributor Andrew Walker owns shares of Telus.

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