Interest rate cuts are expected to pull investors back into quality TSX dividend stocks as income alternatives, such as Guaranteed Investment Certificates (GICs), begin to offer less-attractive rates.
Investors who missed the recent bounce in the market are wondering which top Canadian dividend stocks might still be undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio.
BCE
BCE (TSX:BCE) recently reported second-quarter (Q2) 2024 financial results that show the company’s aggressive moves to cut costs over the past year are starting to help the bottom line. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rose 2% compared to the same period last year. Free cash flow increased 8% to $1.1 billion. This is important for investors who rely on the stability of the dividend for passive income.
Operating revenue slipped 1% compared to Q2 2023. Price wars in the mobile segment likely led to the 8.7% decrease in product revenue. BCE reduced staff by more than 10% over the past year to streamline the business and position the company to meet financial goals. High borrowing expenses and ongoing severance costs impacted profits in the quarter, but the recent cuts to interest rates by the Bank of Canada should lead to lower interest costs in 2025, and most of the expenses related to job cuts should be done this year.
BCE maintained its 2024 guidance in the Q2 report. Management anticipates full-year revenue will be flat to slightly higher compared to 2023. Adjusted EBITDA growth is targeted at 1.5-4.5%. Based on this outlook and ongoing reductions in expenses next year, the dividend should be safe or could even see another modest increase.
BCE raised the dividend by 3.1% for 2024. At the current share price near $48, investors can get a dividend yield of 8.3%.
BCE is up more than 10% in the past month. More gains should be on the way if the Bank of Canada continues to cut interest rates in the coming months. BCE was as high as $74 in 2022.
Fortis
Fortis (TSX:FTS) has a lower dividend yield than is available from many other TSX dividend stocks, but distribution growth is more important than yield when considering top dividend stocks for a buy-and-hold portfolio.
The utility company owns roughly $68 billion in assets across Canada, the United States, and the Caribbean. Businesses include power-generation facilities, electricity transmission networks, and natural gas distribution utilities. These operations deliver rate-regulated revenue and cash flow that tends to be reliable and predictable due to the essential nature of the services.
Fortis grows through a combination of acquisitions and investment projects. The current $25 billion capital program is expected to boost the rate base from $37 billion in 2023 to more than $49 billion in 2028. This should deliver adequate cash flow growth to support annual dividend increases of 4-6%. Fortis has raised the dividend in each of the past 50 years. Investors who buy the stock at the current price near $58.50 can get a 4% dividend yield. The stock was as high as $65 in 2022 before rate hikes sent it as low as $50 in the past year.
The bottom line on top TSX dividend stocks
BCE and Fortis pay attractive dividends that should continue to grow. If you have some cash to put to work in a dividend portfolio, these stocks still look cheap and deserve to be on your radar.
