It is already mid-year. If you haven’t yet made any contributions to your Tax-Free Savings Account (TFSA), now is a good time, as the TSX is set to revive in the second half. Now is your last chance to make the most of the two-year-long downtrend and buy some magnificent dividend stocks at their dip. Buying this dip will give you a dual advantage of locking in a higher dividend yield for decades, and you will also see your invested amount appreciate as the stock price recovers.
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Magnificent dividend stocks to add to your TFSA
Two dividend-paying giants are undergoing major restructuring, as they look to enhance shareholder value. Their restructuring is going as scheduled, increasing confidence in their future cash flows and dividend-paying capacity.
TC Energy stock
TC Energy (TSX:TRP) is the oil and gas pipeline company famous for its Keystone Pipeline. The company has been transitioning its portfolio from oil to gas for years. It gave this strategy a major push last year when it announced the spinoff of its oil pipeline company that will trade as South Bow Corporation. Shareholders voted in favour of the spinoff in June. TC Energy shareholders will receive one share of South Bow for every five shares of TC Energy.
While the spinoff is going as planned, so are the new projects. Approximately $5.3 billion of projects were put in service in 2023, and that too on budget. This is important given that TC Energy’s Coastal GasLink pipeline project went way over budget from the projected $6.6 billion to the actual cost of $14.5 billion. The company paid $1.4 billion over budget from its profits in the first quarter of 2023. TC Energy expects to place approximately $7 billion of new projects in service in 2024.
Another thing going right for TC Energy is its divestiture plan. It divested $5.3 billion worth of assets in 2023 and used the proceeds to reduce debt. For 2024, it aims to divest another $3 billion worth of assets and reduce its debt to 4.75 times the earnings before interest, taxes, depreciation, and amortization (EBITDA).
With things falling into place, the pipeline company announced a 3.2% dividend growth for 2024, the 24th consecutive year of dividend growth. Even after the spinoff, TC Energy expects to grow its dividend by 3-5% and South Bow by 2-3%. Now is the last chance to buy the stock before the spinoff and give your passive income the benefit of two income streams.
BCE
One of Canada’s oldest telecom operators BCE’s (TSX:BCE) stock price began descending in April 2022 and has since fallen 36%. It is because the telecom industry has been going through a tough time. High interest rates increased the cost of capital at a time when the telco accelerated its capital spending. Hence, the stock price descended when the interest rate hike began. The Bank of Canada’s interest rate cut has set the stage for the stock price to surge.
At the time of the writing, BCE stock was trading at $47 after recovering from its 10-year low of $43.96. The stock surged 3% ahead of the interest rate cut. Another major event that pulled down BCE’s stock price was the regulator’s request to give competitors access to its network infrastructure. The talks are underway, and the telco has proposed conditional access that will not impact its returns on network upgrades. The outcome remains uncertain.
In the meantime, BCE is strengthening its business proposition, converting from a telco to a techno company focused on cloud service, cybersecurity, and digital ads. The era of 5G will drive the need for a secure cloud network. BCE is selling its low-return businesses like radio stations and electronics stores to focus on the upcoming high-return businesses.
This transition has pressured its dividend as its 2023 payout ratio surpassed 100% to 113%. With free cash flow expected to fall due to restructuring expenses, the payout ratio could surpass 113% in 2024. Investors are worried about a dividend cut, and their concerns are valid. However, the new techno-driven BCE could make up for the cut, if any, with accelerated dividend growth.
