Canadian retirees can use their self-directed Tax-Free Savings Account (TFSA) to build portfolios focused on generating passive income that won’t bump them into a higher tax bracket or put their Old Age Security (OAS) pension at risk of a pullback.
The drop in the share prices of several top TSX dividend stocks is giving investors a chance to find deals and get high yields to boost their investment earnings.
Enbridge
Enbridge (TSX:ENB) operates oil pipelines, natural gas pipelines, natural gas utilities, oil export facilities and renewable energy assets. The company is also a partner on a new liquified natural gas (LNG) export terminal that is being built in British Columbia.
Enbridge trades near $49 per share at the time of writing compared to $59 at the peak in 2022.
The drop is primarily due to the jump in interest rates in Canada and the United States, rather than as a result of any operational issues. Enbridge uses debt to finance part of its growth program. Higher borrowing costs eat into profits. As soon as interest rates start to decline, interest in ENB stock could rebound.
Getting large new oil and natural gas pipelines approved and built is much harder than it was in the past. As a result, Enbridge has shifted its growth investments in recent years to focus on energy exports, natural gas utilities, and renewable energy projects. That being said, the company’s core oil and gas pipeline systems are still core drivers of revenue and their value should grow. Enbridge moves 30% of the oil produced in Canada and the United States and 20% of the natural gas used by American homes and businesses. These are strategically important assets for the economies of the two countries.
Enbridge has a $25 billion secured development program on the go and is in the process of completing its US$14 billion acquisition of three natural gas utilities in the United States. Distributable cash flow (DCF) is expected to grow by 3% annually through 2026 and by 5% per year beyond that timeline. This should support yearly dividend increases of 3-5%.
Enbridge raised the payout in each of the past 29 years. Investors can currently get a yield of 7.45% from ENB stock.
Telus
Telus (TSX:T) trades near $22 per share compared to $34 at one point in 2022. As with Enbridge, the pullback is primarily due to the surge in interest rates, although Telus also had some revenue challenges emerge in the first half of last year at its Telus International subsidiary, which provides multi-ligual call centre and IT services to global clients.
Management reduced guidance last summer as a result and cut about 6,000 jobs across the company. However, the business still delivered good overall 2023 results, with adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rising 7.6% compared to the previous year. Management expects 2024 to deliver adjusted EBITDA growth of 5.5% to 7.5% in 2024, while consolidated free cash flow should rise by 30%.
Dividend growth should continue and the stock is likely oversold. Investors who buy Telus at the current level can get a 6.8% dividend yield. The board has increased the payout annually for more than two decades.
The bottom line on top dividend stocks for TFSA passive income
Enbridge and Telus are good examples of high-yield dividend stocks with distributions that should continue to grow. If you have some cash to put to work, these stocks deserve to be on your radar.
