Canadian retirees are searching for good dividend stocks to add to their self-directed Tax-Free Savings Account (TFSA) portfolios focused on generating reliable and growing passive income. This helps complement the Canada Pension Plan, Old Age Security, and company pensions.
Despite the surge in the TSX over the past few months, investors can still get high yields from some top Canadian dividend stocks.
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Telus
Telus (TSX: T) is a contrarian pick today. The stock trades below $22 at the time of writing compared to $34 in 2022.
Soaring interest rates in the second half of 2022 and through most of 2023 triggered the initial pullback. Telus uses a lot of debt to fund its capital programs that include the upgrade and expansion of its wireless and wireline network infrastructure. Higher debt expenses can cut into earnings and reduce cash available for distributions or debt reduction.
In 2024, many rate-sensitive stocks rebounded as the Bank of Canada cut interest rates. Telus and its telecom peers, however, missed the party due to price wars and ongoing elevated rates in bond markets. Telus has also had some issues with revenue declines at its Telus International (Telus Digital) subsidiary. In fact, Telus saw its share price dip below $20 late last year.
Headwinds remain for the sector. Borrowing costs are still high, and cuts to immigration levels will impact the pool of potential new subscribers to mobile and internet services. That being said, the price war in the mobile segment appears to be over, and Telus expects to deliver solid free cash flow this year. The company is also working to shore up the balance sheet. Telus recently announced a deal to sell a 49.9% stake in its mobile towers for $1.26 billion. The funds will be used to reduce debt.
Investors who buy Telus at the current price can get a dividend yield of 7.6%. Earlier this year, the company said it plans to raise the distribution annually by 3% to 8%, so the existing distribution should be safe.
Canadian Natural Resources
Canadian Natural Resources (TSX: CNQ) raised its dividend in each of the past 25 years. The company has been able to do this despite the volatility in oil and gas prices. CNRL’s efficient use of capital and a diversified product portfolio that includes oil sands, conventional light and heavy oil, offshore oil, natural gas liquids, and natural gas production are key reasons for the success.
Being big also helps. CNRL is a giant in the Canadian energy sector with a current market capitalization of $90 billion. This gives it the financial firepower to make large strategic acquisitions while also having the means to drive growth through a comprehensive drilling program.
Low oil prices have pushed the share price down from $55 last year to $43. Near-term turbulence should be expected, but investors can now get a dividend yield of 5.5% from CNQ. Additional downside would be an opportunity to add to the position.
The bottom line
Telus and CNRL pay attractive dividends that should continue to grow. If you have some cash to put to work in a TFSA focused on passive income, these stocks deserve to be on your radar.
