Canadian investors are searching for top TSX dividend-growth stocks to add to their Tax-Free Savings Account (TFSA) portfolios focused on passive income and total returns. Canadian Natural Resources (TSX:CNQ) and BCE (TSX:BCE) are market leaders with great track records of distribution growth.
Canadian Natural Resources
Oil and gas producers used to be go-to names for dividend investors. The crash in oil prices in 2014, however, resulted in payouts being cut or eliminated at many energy companies, and investors took a beating on their investments as share prices plunged.
CNRL’s stock price has also gone through some turbulence, but the board has managed to increase the dividend in each of the past 23 years, with a compound-annual dividend-growth rate of better than 20% over that timeframe. The latest increase of 6% bumps the quarterly payout to $0.90 per share. That’s good for a yield of 4.5% at the current share price near $79.50.
CNQ stock surged in recent days on the back of a spike in oil prices triggered by the surprise decision by the Organization of Petroleum Exporting Countries to reduce supply. Oil bulls are predicting West Texas Intermediate oil will move back up to US$100 per barrel by the end of the year. Oil trades at close to US$80 a barrel right now. That’s up from less than US$70 last month but well below the peak above US$120 it hit in 2022.
CNRL is using excess cash to reduce debt, buy back stock, and boost distributions. Investors received a bonus dividend of $1.50 per share in August last year. If oil prices soar again in the coming months, more special payouts could be on the way.
BCE
BCE is one of those stocks dividend investors can buy and simply forget for decades. The company looks a lot different today than it did 20 years ago, but the reason for owning the stock hasn’t changed. BCE generates strong revenue and ample free cash flow from subscriptions to its essential communications services. In the past, this included lucrative landline telephone connections. Today, BCE provides households and businesses with broadband internet and mobile phone services, along with television and security options bundled into the package.
In addition, BCE has built a large media group through a stream of acquisitions that include a television network, specialty channels, radio stations, and online platforms. Sports teams and retail locations round out the mix. Revenue from this part of the business is more variable during economic downturns, but the media group is small compared to the wireless and wireline network operations.
BCE raised the dividend by at least 5% per year over the past 15 years. At the time of writing, the current distribution provides an annualized yield of 6.2%.
BCE stock appears cheap right now near $62 per share. It traded above $70 last April.
Is one a better buy for dividend investors?
CNRL and BCE pay attractive dividends that should continue to grow. BCE offers a higher yield and looks undervalued today, so conservative investors who are concerned about the risks of an economic downturn might want to make BCE the first choice.
CNRL, however, should be on the radar if you are of the opinion that energy prices are headed higher and will stay elevated for the next few years.
At this point, I would probably split a new investment between the two stocks.
