Dividend Deals: 2 Top TSX Stocks That Still Look Undervalued

These stocks now have dividend yields above 7%.

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Canadian investors seeking passive income in a Tax-Free Savings Account (TFSA) and those more focused on total returns inside a Registered Retirement Savings Plan (RRSP) can get high yields right now on great Canadian dividend stocks with solid track records of distribution growth.

Enbridge

Enbridge (TSX:ENB) is a giant in the North American energy infrastructure industry. The company moves 30% of the oil produced in Canada and the United States and 20% of the natural gas used by American homes and businesses.

ENB stock trades near $49.50 at the time of writing compared to $59 two years ago.

The drop in the share price is mostly due to rising interest rates in Canada and the United States. At this point, the central banks appear to have inflation under control and moving in the right direction. Rate cuts are expected to occur through the end of 2024 and into next year. This will ease borrowing costs for Enbridge and should free up more cash for investments or distributions.

With a current market capitalization of roughly $105 billion, Enbridge has the financial firepower to grow through acquisitions and capital projects. The company is in the process of completing its US$14 billion purchase of three natural gas utilities in the United States. Enbridge is also working on a $25 billion secured capital program. As a result, distributable cash flow (DCF) is expected to increase at a rate of 3% per year through 2026 and by 5% afterwards. This should support ongoing dividend increases.

Enbridge raised the distribution in each of the past 29 years. Investors who buy ENB stock at the current level can get a dividend yield of 7.4%.

TC Energy

TC Energy (TSX:TRP) operates more than 90,000 km of natural gas pipelines and 650 billion cubic feet of natural gas storage capacity in Canada, the United States, and the Caribbean. The company also has oil pipelines and power-generation facilities.

TC Energy plans to sell $3 billion in assets in 2024 and intends to spin off the oil pipelines business to unlock value and raise extra cash. These efforts follow the $5.3 billion sale of a part interest in assets in the United States last year. The moves to shore up the balance sheet will help position TC Energy to make progress on its large capital program. Asset growth of about $8 billion is on deck in 2024, and the capital program run rate is expected to be $6 billion to $7 billion per year in 2025 and beyond over the medium term.

TC Energy increased the dividend in each of the past 24 years. Annual dividend hikes of 3-5% should be on the way as the new assets go into service. TC Energy trades near $52 per share at the time of writing compared to $74 at the high point in 2022. Investors who buy at the current level can get a 7.4% dividend yield.

The bottom line on top TSX dividend stocks

Enbridge and TC Energy are good examples of high-yield stocks that should continue to raise their distributions. Ongoing volatility is expected in the near term, but these stocks already look cheap and deserve to be on your radar for a dividend portfolio.

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 Enbridge. The Motley Fool has a disclosure policy. Fool contributor Andrew Walker owns shares of Enbridge.

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