Dividend Deals: 2 Top TSX Stocks That Still Look Undervalued

These top TSX dividend stocks still look cheap.

| More on:
think thought consider

Image source: Getty Images

Expectations for rate cuts in Canada and the United States are starting to bring bargain hunters back to dividend stocks that dropped over the past two years.

Investors who missed the recent bounce and are wondering which top TSX dividend stocks are still undervalued today and might be good to buy for their self-directed Tax-Free Savings Account (TFSA) and Registered Retirement Savings Plan (RRSP) accounts.

TC Energy

TC Energy (TSX:TRP) is up about 6% in the past month but still trades below $53 compared to more than $73 at the high point in 2022 before the Bank of Canada and the U.S. Federal Reserve aggressively raised interest rates.

Pipeline companies grow through a combination of acquisitions and organic growth projects. Debt plays a role in the financing of the growth initiatives, so a steep rise in borrowing charges can put pressure on projects that cost billions of dollars to build and often take years to complete. A jump in debt expenses puts pressure on profits and can reduce cash available for distributions.

Interest rates are expected to decline in the second half of 2024 or in 2025. This should attract investors back to the pipeline sector.

TC Energy’s 670 km Coastal GasLink project reached mechanical completion last year. The final cost is expected to be around $14.5 billion, which is more than double the initial budget. TC Energy’s overall business, however, performed well in 2023, and management expects ongoing capital investments to support planned annual dividend increases of at least 3%. The board has increased the payout annually for more than two decades.

TC Energy’s extensive natural gas transmission network and gas storage capacity in Canada, the United States, and Mexico put the company in a good position to benefit from an anticipated surge in demand for natural gas in the coming years as power-hungry data centres are built to support artificial intelligence. A large chunk of the electricity they use will likely be produced by gas-fired power plants, along with renewable sources.

At the time of writing, TRP stock provides a 7.3% dividend yield.

Telus

Telus (TSX:T) generated growth in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of 7.6% in 2023. That’s pretty good, considering the management team had to reduce guidance last summer due to revenue challenges faced by the Telus International subsidiary. Revenue pressures in that group are expected to continue through most of 2024, but management anticipates an improvement in demand by the end of the year.

In 2024, Telus is targeting adjusted EBITDA growth of 5.5% to 7.5%. Free cash flow is expected to improve, and the dividend should continue to grow. Telus reduced staff by roughly 6,000 positions last year. The impact of the lower expenses should show up in the 2024 results.

Price wars and an uncertain regulatory environment could be an overhang for the stock over the medium term. That being said, investors who buy Telus stock at the current level can collect a decent 7% dividend yield while they wait for the rebound.

The bottom line on top TSX dividend stocks

TC Energy and Telus pay attractive dividends that should continue to grow. If you have cash to put to work, 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. The Motley Fool has a disclosure policy. Fool contributor Andrew Walker owns shares of Telus.

More on Dividend Stocks

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

Where to Invest Your $7,000 TFSA Contribution

The TFSA is attractive for investors who want to generate tax-free passive income.

Read more »

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.
Dividend Stocks

TFSA Investors: 3 Dividend Stocks Worth Holding Forever

These TSX stocks have the potential to grow their dividends over the next decade, making them top investments for TFSA…

Read more »

Tractor spraying a field of wheat
Dividend Stocks

Is Nutrien Stock a Buy for its Dividend Yield?

Nutrien is down more than 50% form the 2022 highs. Is NTR stock now oversold?

Read more »

golden sunset in crude oil refinery with pipeline system
Dividend Stocks

Best Stock to Buy Right Now: Enbridge vs TC Energy?

Enbridge and TC Energy rebounded nicely over the past year. Are more gains on the way?

Read more »

Electricity transmission towers with orange glowing wires against night sky
Dividend Stocks

2 Utility Stocks That Are Smart Buys for Canadians in November

Are you looking for some of the smart buys to consider in November? These utility stocks offer growth and a…

Read more »

View of high rise corporate buildings in the financial district of Toronto, Canada
Dividend Stocks

Is Power Corporation of Canada Stock a Buy for its 5% Dividend Yield?

Is Power Corporation of Canada (TSX:POW) stock's 5% dividend yield worth it? Discover why this resilient stock could be a…

Read more »

hand stacks coins
Dividend Stocks

Here Are My Top 3 Dividend Stocks to Buy Now

These three dividend stocks are ideal for strengthening your portfolio and earning a stable passive income.

Read more »

man touches brain to show a good idea
Dividend Stocks

3 No-Brainer REIT Stocks to Buy Right Now for Less Than $200

REITs have long been touted as some of the best dividend stocks out there if you want recurring, strong income.…

Read more »