A number of top Canadian dividend stocks are now trading at discounted prices and offer attractive yields for a self-directed Tax-Free Savings Account (TFSA) focused on passive income.
Enbridge
Enbridge (TSX:ENB) is a major player 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 Americans. Growth initiatives in recent years have shifted away from the construction of major pipelines to exports, utilities, and renewable energy.
Enbridge purchased an oil export terminal in Texas and is a partner in the Woodfibre liquified natural gas (LNG) facility being built on the coast of British Columbia. The company is also in the process of finalizing its US$14 billion acquisition of three natural gas utilities in the United States. Demand for natural gas in both the U.S. and overseas is expected to grow as gas-fired power production is used to complement the shift to renewables. It will also play a role in feeding the power demands of new artificial intelligence (AI) data centres.
Enbridge trades near $48.50 at the time of writing compared to $59 two years ago. The stock is off the 12-month low around $43 and more gains should be on the way once the U.S. starts to cut interest rates. Enbridge uses debt to fund its growth programs. Lower borrowing costs should boost profits and free up more cash that can be paid out to shareholders.
Enbridge is working on a $25 billion capital program. Management says this will help drive distributable cash flow up by 3% per year through 2026 and by 5% after that timeframe. This should enable dividend growth in the same range. Enbridge raised the payout in each of the past 29 years.
Investors who buy ENB stock at the current level can get a dividend yield of 7.5%.
Telus
Telus (TSX:T) trades for less than $21 per share at the time of writing. The stock was as high as $34 two years ago, so there is decent upside potential on a rebound.
As with Enbridge, the surge interest rates in 2022 and 2023 drove up borrowing costs. Telus spends billions of dollars every year on wireless and wireline network expansion and uses debt to fund part of the capital program. The Bank of Canada recently reduced its interest rate and more cuts are expected through 2025. This should entice investors back to Telus stock.
Telus generated growth in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of better than 7% in 2023 and anticipates adjusted EBITDA growth of at least 5.5% this year. Based on this outlook, the stock is likely oversold.
Telus has increased the dividend annually for more than 20 years. Investors who buy now can get a 7.5% dividend yield.
The bottom line
Enbridge and Telus pay attractive dividends that should continue to grow. If you have some cash to put to work, these stocks deserve to be on your radar for a portfolio targeting high-yield passive income.
