Retirees and other income investors are searching for top TSX dividend-growth stocks with high yields to add to their self-directed Tax-Free Savings Account (TFSA).
Enbridge
Enbridge (TSX:ENB) sold off when the Bank of Canada raised interest rates in 2022 and 2023. The stock started to recover last fall as soon as market sentiment switched from fear of additional rate hikes to anticipation of rate cuts this year. Recent reductions by the Canadian central bank are expected to continue. This should provide more support for Enbridge as investors rotate out of fixed-income alternatives.
Enbridge raised its dividend in each of the past 29 years and more increases should be on the way. The company is wrapping up its US$14 billion purchase of three natural gas utilities in the United States and has a $24 billion capital program. The new assets will boost revenue over the next few years and Enbridge expects distributable cash flow (DCF) to increase by 3% annually through 2026 and by 5% starting in 2027. Enbridge uses debt to fund part of its growth program. Falling interest rates will reduce financing expenses to support profits and should free up more cash for distributions.
The stock isn’t as cheap as it was in October last year, but still sits about 8% below the 2022 high, so there is still decent upside potential. Investors who buy ENB stock at the current price can pick up a 6.8% dividend yield.
Telus
Telus (TSX:T) dropped from $34 in 2022 to as low as $20 this summer. Bargain hunters moved in over the past two months, but the stock is still trading under $22 at the time of writing. Telus spends billions of dollars on capital projects that include network expansion and upgrades. As with Enbridge, Telus uses debt to pay for part of the investments. Soaring interest rates cut into profits and put pressure on cash levels over the past two years. Telus should get some relief with rates in retreat.
On the operational side, weaker-than-anticipated revenue at Telus International forced Telus to reduce financial guidance last year and the subsidiary continues to put pressure on earnings in 2024. That being said, Telus still expects to deliver growth in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) this year.
Telus isn’t without risk. Competition and regulatory headwinds are expected to persist over the medium term, so there could still be some volatility for Telus shareholders in the next couple of years. That being said, the stock already looks cheap and investors who buy Telus at the current level can pick up a dividend yield of 7.2%. The board has increased the dividend 26 times in the past 14 years.
The bottom line on top stocks for dividends
Enbridge and Telus pay attractive dividends that should continue to grow. If you have some cash to put to work in a TFSA targeting passive income, these stocks deserve to be on your radar.
