The drop in rates offered on Guaranteed Investment Certificates (GICs) is driving new interest in top Canadian dividend stocks. Retirees can still get good deals on TSX dividend payers with long track records of distribution growth.
BCE
BCE (TSX:BCE) has taken a beating over the past two years. The stock slipped from $74 in the spring of 2022 to below $43 last month. Bargain hunters have since moved in and the stock currently trades near $47.
Soaring interest rates triggered the initial pullback in the second half of 2022 and through much of last year. BCE spends billions of dollars every year on its networks and uses debt to fund part of the capital program. The jump in borrowing costs has cut into profits and reduced cash available for distributions. This is part of the reason the dividend increase for 2024 was 3.1% instead of the 5% average annual jump in the previous 15 years.
Tough market conditions and regulatory uncertainty have added to the pain. Price wars in the mobile and internet segment are putting a pinch on margins. Weak ad revenue in the media group has also impacted the business.
Things should start to improve next year, even as BCE will be forced to allow competitors to use some of its fibre networks. BCE took aggressive measures in the past year to position the business to meet financial targets. The company reduced staff by more than 10% and sold or closed dozens of radio stations while trimming programming across the television assets.
The combination of lower operating costs and reduced borrowing expenses from recent rate cuts should help BCE deliver stable results in 2025. For 2024, the company is maintaining its guidance for flat-to-slightly-higher revenue and better adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) compared to last year. This should support the dividend heading into 2025.
The stock is probably oversold at this level. Investors can get a dividend yield of 8.5% today from BCE.
TC Energy
TC Energy (TSX:TRP) soared in recent weeks as investors cheered rate cuts by the Bank of Canada and moved into the stock in anticipation of cuts to interest rates in the United States.
TC Energy’s debt levels soared in the past few years as it was forced to borrow extra cash to cover the jump in the cost to get its Coastal GasLink project completed. The final tally is expected to be in the range of $14.5 billion, which is more than double the original budget. Fortunately, the 670 km pipeline reached mechanical completion in late 2023 and is expected to go into commercial operation in 2025.
TC Energy has done a good job of monetizing non-core assets to shore up the balance sheet, with roughly $8 billion in asset sales completed or anticipated over the course of 2023 and 2024. These efforts, along with Coast GasLink’s successful $7.15 billion bond issue, will position TC Energy to pursue ongoing capital projects.
TC Energy raised the dividend in each of the past 24 years. Ongoing increases should be on the way, supported by cash flow growth as new assets go into service. Investors who buy TRP stock at the current price near $60 can get a 6.4% dividend yield. The shares were as high as $74 in 2022, so there is decent upside potential.
The bottom line on top stocks for passive income
BCE and TC Energy pay attractive dividends for investors seeking high yields and stable payouts. If you have some cash to put to work in a portfolio targeting passive income, these stocks deserve to be on your radar.
