It’s become a tad more challenging in recent years to level up one’s TFSA (Tax-Free Savings Account) income, given all the appreciation in dividend stocks we’ve had. Undoubtedly, the TSX Index has finally topped the S&P 500. And 2025 may very well mark the start of a streak, as investors care a bit more about valuations and slightly less about attractive AI-driven tech stories.
Of course, AI growth still matters, and it shows potential to take earnings growth and economic productivity to new heights. But with limited clarity on when such technologies will really start to drive earnings, I do think that there are a lot of pockets of severe overvaluation. Even with real, transformative technologies, you can still lose big money if you pay too high a premium for entry into a stock.
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Finding yield is getting tougher, but there are opportunities out there
Perhaps you could be right in that a certain firm leverages AI in a way to become a massive winner, but you might not have much to show for your investment if you did pay up too much. At the end of the day, a lousy business with no growth can be a decent buy if you get a rock-bottom price.
And, on the flipside, a stellar company with the best growth narrative can be a lousy buy if you’re paying a multiple that bakes in the strong fundamentals and perhaps a bit more. That’s why it can be dangerous to chase hot stocks in the tech scene when markets are running hot, and there’s a bit of a frenzy brewing behind a certain theme.
In any case, with the rally in big bank stocks, gone are the 5% or 6% yields in the top names. Additionally, some of the REITs have also appreciated a great deal. Though the yield compression hasn’t been as severe as with the red-hot bank stocks. While yields, on average, might be smaller, there are corners where yields are still swollen. Take the telecoms as an example of an industry that’s still down.
Telus and BCE stand out as great high-yielders!
Telus (TSX:T) stock has the 8.9% dividend yield, which is sure to act as a yield booster for any long-term TFSA portfolio, at least for the time being. For now, it feels like management is doing everything in its power to keep the dividend going strong, even if it means cutting costs in other parts of the business (think layoffs and embracing tech to drive efficiencies). Though dividend growth is off the table for the medium term, I still think Telus is a firm that can keep paying out supercharged dividends to investors as it finds its way.
Of course, it’s so much easier to just slash the dividend so that the extra cash can be invested in efforts to spark a recovery. BCE (TSX:BCE) reduced its payout, but the reaction has not been all too good. Perhaps Telus is right to stand by its dividend, as it retains the investment dollars of its most devoted income investors.
With significant insider buying at Telus, I’d argue that the value proposition of the dividend giant is shining through. And while BCE’s dividend, which yields 5.2%, might be on stabler ground, I’d argue that Telus might have the ability to pull off one of the greatest turnarounds, perhaps as soon as 2026.
Either way, I find BCE and Telus to be great buys together. The yields differ by close to 4%, but the two different turnaround strategies, I think, are worth sticking with. For Telus, it’s about keeping that dividend together, and for BCE, it’s about growing that dividend back.
