Pipeline stocks and telecom stocks took a beating over the past two years. Contrarian investors now have a chance to buy discounted dividend stocks that offer attractive yields and growing distributions for their self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolios.
Enbridge
Enbridge (TSX:ENB) trades near $49.50 at the time of writing compared to $59 at the high point in 2022. The stock was as low as $43 last year.
Bargain hunters started buying in the fourth quarter (Q4) of 2023, and more gains could be on the way once the central banks start cutting interest rates. Lower rates reduce borrowing costs for companies like Enbridge that use debt to fund growth initiatives. The result should be better profits and more cash available for distributions.
Enbridge is a major player in the North American energy infrastructure industry. The company’s energy transmission networks move 30% of the oil produced in Canada and the U.S. and 20% of the natural gas that is used in the United States. These assets are strategically important for the smooth operation of the economy and will remain key drivers of revenue for decades.
In recent years, Enbridge shifted its growth strategy to focus on opportunities beyond the core pipeline networks. Enbridge now owns an oil export terminal in Texas and is a partner on the construction of a new liquified natural gas (LNG) export facility being built in British Columbia. Demand for reliable North American energy is on the rise amid global political unrest in key oil and natural gas production regions.
Enbridge is betting big on anticipated growth in natural gas demand driven by power-hungry data centres. Gas-fired power plants will be key back-ups for renewables as they provide reliable and scalable power when demand surges. In the domestic market, Enbridge is in the process of closing a $14 billion acquisition of three natural gas utilities in the United States. The deals will make Enbridge the largest natural gas utility operator in North America.
Enbridge has also bulked up its renewable energy division with the acquisition of an American solar and wind project developer, along with expanding partnerships on large offshore wind projects in Europe.
Acquisitions and the $25 billion capital program are expected to deliver 3% annual growth in distributable cash flow (DCF) through 2026 and 5% beyond that timeframe. This should support steady dividend increases in the same range. Enbridge increased the dividend in each of the past 29 years.
Investors who buy the stock at the current level can get a dividend yield of 7.4%.
Telus
Telus (TSX:T) trades below $22.50 at the time of writing. The stock was above $30 two years ago. Rising interest rates are to blame for most of the pullback. As with Enbridge, Telus uses debt to fund part of its capital program. Telecom companies invest billions of dollars every year on wireline and wireless network upgrades to ensure customers have the broadband they need.
Telus lowered its 2023 financial guidance in the summer of last year due to revenue declines in its Telus International subsidiary, which provides multilingual call centre and IT services to global clients. The group contributes a small part of overall adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), but Telus still delivered adjusted EBITDA growth of 7.6% last year. Management is targeting 5.5-7.5% adjusted EBITDA growth in 2024, so the drop in the share price appears overdone.
Investors who buy Telus at the current level can get a dividend yield of 7%. The board has increased the payout annually for more than two decades.
The bottom line on top high-yield TSX stocks
Ongoing volatility should be expected until the central banks start cutting interest rates. That being said, Enbridge and Telus pay attractive dividends that should continue to grow, so you get paid well to wait for a rebound.
If you have some cash to put to work, these stocks deserve to be on your radar right now for a TFSA or RRSP targeting high dividend yields.
