Retirees seeking passive income and other investors looking to build pension portfolios have an opportunity to buy great TSX dividend-growth stocks at discounted prices for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP).
Enbridge
Enbridge (TSX:ENB) trades near $49 per share at the time of writing compared to $59 at the high point two years ago before the Bank of Canada and the U.S. Federal Reserve started to aggressively raise interest rates to get inflation under control.
Enbridge uses debt to finance part of its growth initiatives, so the jump in borrowing costs can reduce profits while cutting into cash that can be paid out as dividends. Inflation is trending lower, and economists broadly expect the central banks to start cutting interest rates in the second half of 2024. Once that happens, Enbridge could get a nice boost.
Distributable cash flow (DCF) is expected to increase by at least 3% per year over the medium term, supported by the capital program and acquisitions. Dividend growth should be in line with the expansion of DCF. Enbridge raised the payout in each of the past 29 years. At the current share price, investors can get a yield of 7.5%.
Telus
Telus (TSX:T) trades for less than $22 per share at the time of writing compared to more than $30 two years ago. Rising interest rates are largely to blame in this case as well, although Telus has also had to deal with weaker revenues at its Telus International subsidiary, which provides multi-lingual call centre and IT services to global clients.
Telus still generated 7.6% growth in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) last year and expects adjusted EBITDA to increase by at least 5.5% in 2024. As such, the drop in the share price is probably overdone.
Investors who buy Telus stock at the current price can get a 7.1% dividend yield.
TC Energy
TC Energy (TSX:TRP) operates more than 90,000 km of natural gas transmission lines and has 650 billion cubic feet of natural gas storage capacity in Canada, the United States, and Mexico. Oil pipelines and power-generation facilities round out the asset base, although the oil pipelines business will be spun off this year.
Natural gas demand in North America and across the globe is expected to rise in the coming years. Gas-fired power generation is replacing coal and oil and is expected to remain important through the energy transition to renewables. Solar, wind, and hydroelectric power have limitations, so there needs to be reliable power generation to fill supply gaps. This is becoming more important as power-hungry artificial intelligence data centres are driving a jump in electricity demand.
TC Energy’s capital program should support ongoing annual dividend increases in the 3% range. The board raised the payout in each of the past 24 years. TRP stock trades near $51 at the time of writing compared to more than $70 at the high point in 2022. Investors who buy at the current level can get a 7.5% dividend yield.
The bottom line on top dividend stocks
Ongoing volatility should be expected until the central banks begin cutting interest rates. That being said, Enbridge, Telus, and TC Energy already look oversold and pay attractive dividends that should continue to grow. If you have some cash to put to work in a portfolio targeting high dividend yields, these stocks deserve to be on your radar.
