Enbridge (TSX:ENB) and BCE (TSX:BCE) are top TSX dividend stocks paying high yields. Investors seeking to generate passive income inside their self-directed Tax-Free Savings Account (TFSA) are wondering if ENB stock or BCE stock is now undervalued and good to buy.
Enbridge
Enbridge trades near $48 per share at the time of writing compared to a 12-month low of around $43 and as high as $59 in 2022.
The company has pivoted its growth strategy in recent years away from the construction of large oil pipelines to exports, natural gas utilities, and renewable energy. Enbridge purchased an oil export terminal in Texas for US$3 billion and is a partner in the construction of the Woodfibre liquified natural gas (LNG) export facility being built in British Columbia. Global buyers are searching for reliable sources of oil and liquified natural gas amid growing geopolitical uncertainty. Canada and the United States have ample supplies of both and should see demand increase in the coming years.
Enbridge is working to wrap up the remaining part of its US$14 billion purchase of three natural gas utilities in the United States. The addition of the assets provides further diversification of the revenue stream and will make Enbridge the largest natural gas utility operator in North America.
Enbridge is also expanding its solar and wind assets, positioning itself to benefit from the ongoing shift to renewable energy.
Management expects distributable cash flow to grow by about 3% annually in the next few years, supported by the acquisitions and the capital program. The board raised the dividend by 3.1% for 2024. This is the 29th consecutive annual dividend hike from the company. Investors who buy the stock at the current price can get a 7.6% dividend yield.
BCE
BCE investors have taken a beating over the past two years. The stock is down about 40% from the 2022 high and trades close to a 10-year low. The plunge in the share price has driven the dividend yield to nearly 9%.
This is a tempting return from a stock that increased the dividend by 3.1% for 2024 and raised the payout by an average of 5% per year over the previous 15 years. Investors who are of the opinion that BCE’s dividend is safe will see the stock as being oversold right now. The market appears to be anticipating a distribution cut.
BCE expects 2024 revenue to be equal to 2023 or slightly higher. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) should be a bit better than last year, according to the latest outlook. Based on this outlook, the dividend should be fine.
BCE announced staff cuts of more than 6,000 positions in the past 12 months. The reduction in expenses will help BCE hit its financial targets. A drop in interest rates anticipated in the second half of 2024 could provide the stock with a new tailwind.
On the risk side, BCE’s media business is struggling with declining ad revenue in the radio and television segments. Uncertainty on government policy regarding the Canadian communications industry is also a potential negative for the stock.
Near-term volatility should be expected and there could be more downside before the pullback hits a bottom.
Is one a better bet?
Enbridge and BCE are leaders in their respective industries and pay attractive dividends that should be safe. BCE is likely oversold right now but could get cheaper in the near term. Enbridge has had some decent upward momentum over the past six months and probably has better upside potential in the short term.
Contrarian investors might want to split a new investment between the two stocks. If you only buy one, Enbridge probably has the edge as the safer pick right now.
