Canadian retirees and other dividend investors are wondering which TSX stocks might be good to buy right now for a self-directed Tax-Free Savings Account (TFSA) focused on passive income.
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TC Energy
TC Energy (TSX: TRP) is up 40% in the past year. The stock’s strong rebound off an extended decline in 2022 and 2023 is welcome news for investors. More gains could be on the way.
TC Energy recently completed two large natural gas pipeline projects that will add important revenue this year. The 670 km Coastal GasLink project is already in commercial operation, connecting natural gas producers in Canada to the new LNG Canada liquified natural gas export facility on the coast of British Columbia. In Mexico, TC Energy is near commercial operation of its Southeast Gateway pipeline.
Looking ahead, TC Energy has an ongoing capital program that will see the company invest about $6 billion per year over the medium term. This should support ongoing dividend growth in the 3% to 4% range. TC Energy raised the dividend in each of the past 25 years. Investors who buy TRP stock at the current level can get a dividend yield of close to 5%.
Enbridge
Enbridge (TSX: ENB) is another Canadian pipeline giant that rallied over the last 12 months. The stock is up 30% in the past year, supported by a major acquisition and a large capital program.
Enbridge purchased three natural gas utilities in the United States in 2024 for US$14 billion. The deal made Enbridge the largest natural gas utility operator in North America and extends Enbridge’s strategy of diversifying its asset portfolio. In recent years Enbridge purchased an oil export facility in Texas and took a stake in the Woodfibre liquified natural gas (LNG) export facility being built in British Columbia. Enbridge also bulked up its renewables division through the acquisition of a wind and solar developer.
The current $26 billion capital program, along with revenue from the recent acquisitions, should help Enbridge meet its goal of delivering adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of 7% to 9% through 2026. Distributable cash flow growth is expected to be 3% over that timeframe. This should support steady dividend increases. Enbridge raised the dividend in each of the past 30 years. Investors can currently get a dividend yield of 5.9% from ENB stock.
Outlook
Falling interest rates in the second half of 2024 provided a nice tailwind for TC Energy and Enbridge. The companies use debt to fund part of their growth initiatives, so lower borrowing costs can boost returns on projects and reduce debt expenses. Interest rates might not fall further in the near term due to inflation risks caused by tariffs, but the central banks might be forced to cut rates later in 2025 to support a weakening economy. If rate cuts resume in Canada and the United States, TC Energy and Enbridge should move higher.
The bottom line on TFSA passive income
TC Energy and Enbridge pay good 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.
