Canadian pensioners are using their self-directed Tax-Free Savings Account (TFSA) to generate investment income that can help cover the rising cost of living. One popular TFSA strategy involves owning top high-yield TSX stocks that have good track records of dividend growth.
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Telus stock
Telus (TSX: T) is a Canadian communications company based in British Columbia with wireline and wireless assets that stretch across the country. The company is different from its two large peers in that Telus didn’t spend billions of dollars to acquire media assets over the past 15-20 years. That decision has enabled Telus to avoid the challenges currently being faced in the Canadian media industry as television and radio revenues decline due to advertisers shifting marketing spending to digital alternatives.
Telus has invested in other subsidiaries to diversify its revenue stream. Telus Health is growing at a steady pace. Telus Digital (TSX: TIXT) was on a roll, but is now facing some revenue issues that have emerged over the past two years.
Still, Telus is performing well overall considering industry headwinds, including price wars and regulatory uncertainty. Management expects adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to rise this year. Falling interest rates should reduce debt expenses in 2025. Lower operating costs due to staff cuts implemented over the past 12 months should also help next year.
Telus trades near $22 per share at the time of writing. Investors shouldn’t expect a major rebound in the coming months, but the stock was as high as $34 in 2022, so there is decent upside potential on a long-term recovery.
Investors who buy Telus at the current price can get a 7% dividend yield. Telus has increased its distribution annually for more than 20 years.
Bank of Montreal stock
Bank of Montreal (TSX: BMO) trades near $123 per share at the time of writing. The stock is up from $112 a month ago, but it remains well below the $152 it reached in 2022 before the Bank of Canada and the U.S. Federal Reserve started to aggressively raise interest rates to get inflation under control.
The sharp increase in interest rates over such a short period of time forced Bank of Montreal and its peers to raise provisions for credit losses (PCL) in recent quarters due to rising risks of defaults from borrowers who are carrying too much debt.
Now that interest rates are starting to decline again in Canada and the United States, investors should start to see PCL come down in 2025, as long as the economy remains in decent shape.
Bank of Montreal has also been hurt by its US$16.3 billion purchase of Bank of the West in 2023. The deal closed right before chaos hit the U.S. regional banks that drove down valuations. Investors might be concerned that Bank of Montreal paid too much for the acquisition. Timing wasn’t great, but the benefits should emerge over the long term. Bank of Montreal has a strong track record of making successful acquisitions in the United States over the past 40 years.
Investors who buy BMO stock at the current price can get a 5% dividend yield. Bank of Montreal has paid a dividend annually for nearly two centuries.
The bottom line on stocks to own for passive income
Telus and Bank of Montreal pay attractive dividends that should continue to grow. If you have some cash to put to work in a portfolio focused on passive income, these stocks deserve to be on your radar.
