Canadian pensioners are taking advantage of their Tax-Free Savings Account (TFSA) contribution space to build portfolios of high-yield dividend stocks that can generate income to complement their CPP, OAS, and work pensions.
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BCE
Long-time BCE (TSX: BCE) investors took a big hit last year when the telecoms giant slashed its dividend by more than 50% in an effort to preserve cash flow amid challenging market conditions. The stock had already moved considerably lower on the expectations of the cut and has since remained under pressure.
This makes BCE a contrarian pick at this point, but the 6% yield provides some cushion to ride out the turbulence.
BCE is investing in new growth markets to help offset the decline in some of its legacy assets. The company spent $5 billion to buy Ziply Fiber, an American internet services firm with good expansion potential that is not available in the Canadian market. At home, BCE is investing in AI data centres to meet soaring demand from government and corporate clients who want to ensure their data remains on Canadian soil.
Low immigration, price wars, and high interest rates will likely continue to be headwinds for the company through 2027, but these challenges are known and probably already priced into the shares at this point. The reduced dividend payment should be sustainable as BCE works through its turnaround efforts.
Enbridge
Enbridge (TSX: ENB) trades near $68 per share at the time of writing, compared to $80 a few months ago. Investors who missed the big rally over the previous two years have a chance to buy ENB on a meaningful dip and can now pick up a dividend yield of 5.7%.
Enbridge diversified its revenue stream in the United States over the past five years through a series of acquisitions. The company purchased an oil export terminal in Texas, bought three American natural gas utilities, and nabbed the third-largest wind and solar developer in the country.
Demand for energy and power is surging south of the border as new power-hungry AI data centres get built. Enbridge is constructing wind and solar sites to supply renewable power for tech clients. The natural gas infrastructure should see strong volumes as new gas-fired power generation facilities are completed to meet the additional electricity demand.
Energy exports are also on the rise. Countries around the globe are buying more Canadian and American oil and natural gas to replace supplies disrupted by wars in Ukraine and the Middle East. Enbridge is investing in new infrastructure in the U.S. to connect producers to export facilities. In Canada, Enbridge is a partner on the new Woodfibre LNG export site nearing completion on the coast of British Columbia.
The company’s current $41 billion secured capital program is expected to drive steady growth in distributable cash flow. This should enable Enbridge to maintain annual dividend increases. The board raised the dividend in each of the past 31 years.
The bottom line
BCE and Enbridge are industry leaders that pay attractive dividends. If you have some cash to put to work in a TFSA income portfolio, these stocks deserve to be on your radar.
