3 TSX Stocks I Wouldn’t Touch With a 10-Foot Pole

It has been a strong year for many TSX stocks. However, there are group of dividend stocks that you just don’t want to touch right now.

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Bad apple with good apples

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So far, 2024 has been pretty good for most TSX stocks. The TSX Index is up 4.7% this year. While the outlook for Canadian stocks continues to be decent for the remainder of the year, investors need to be choosey what sectors and stocks they own.

There continue to be some nasty headwinds, especially for sectors that are debt-heavy and have significant regulatory oversight. Here are three well-known dividend stocks that I wouldn’t touch with a 10-foot pole right now.

A TSX telecom stock with a dividend at risk

The first TSX stock to be very cautious about is BCE (TSX:BCE). Many dividend investors might be tempted by its massive 8.6% dividend yield. Many investors wish to believe that the stock’s $41 billion market cap makes it too big to fall further or too big to cut its dividend.

Well, for context, it was a $65 billion company only two years ago. Nothing stopped it from losing over 35% of its value. BCE is facing headwinds from numerous angles.

Its expansion into media has not paid off. Those businesses have significantly underperformed and been a drag on earnings. It has been a forced seller of several media assets at low valuations.

BCE has been slow to right-size its cost structure. After years of significant capital investment, it is loaded with debt, and high interest rates are eating its bottom line. It is only through the first round of layoffs, but more are coming.

Lastly, BCE’s dividend is not even close to being sustain by earnings or free cash flow. In the past, it has relied on cheap financing capital to support its aggressive dividend growth. That capital is not available anymore. As a result, it is difficult to comprehend how this TSX stock will support its current dividend or even grow it.

A utility stock that can’t find its way

Another TSX stock I wouldn’t touch right now is Algonquin Power and Utilities (TSX:AQN). It may foreshadow what could happen to BCE. Algonquin took on too much variable debt to finance an aggressive renewable and utility growth strategy. That fell apart when interest rates rapidly soared in 2022.

At one point, Algonquin stock yielded 8.2%. It cut its dividend by 40% and fired its executive team. The problem is that the company is still in a no-man’s land.

Even after its dividend was cut, its yield has been creeping up. This just indicates that investors continue to be worried about its ability to monetize assets, lower its debt, and return to a sustainable/profitable strategy.

A top TSX bank stock that keeps running into trouble

Toronto-Dominion Bank (TSX:TD) has been a stalwart for dividends in Canada for the past several decades. The bank has done a great job of becoming a top banking brand in Canada and the U.S.

However, recently, the bank has strayed. Whether it be the recently botched deal to acquire First Horizon Bank in the U.S., or the numerous investigations into compliance and money-laundering issues, the bank’s ability to operate and execute seems suspect.

Some analysts have suggested the bank could face as much as $2 billion worth of charges due to these issues. While its dividend is likely not at risk (like the two stocks above), these near-term headwinds are enough to keep me away from this TSX stock.

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 Robin Brown has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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