Retirees and other investors seeking passive income are searching for ways to generate high yields on their savings to help offset the impact of inflation. One popular strategy involves owning top TSX dividend-growth stocks inside a self-directed Tax-Free Savings Account (TFSA).
The pullback in the share prices of many great dividend stocks in the past year is giving investors a chance to buy at low prices and secure attractive dividend yields.
Enbridge
Enbridge (TSX:ENB) is a giant in the North American energy infrastructure industry. The company moves roughly 30% of the oil produced in Canada and the United States. It also transports 20% of the natural gas used by American businesses and homes. In addition, Enbridge has natural gas utilities, export facilities, and renewable energy assets.
Enbridge increased its dividend in each of the past 28 years. The stock currently offers a 7.7% dividend yield trading below $47 per share. ENB topped $59 at the peak in 2022.
The drop in the share price appears exaggerated. Enbridge is on track to deliver solid financial results for 2023 with adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) expected to be at least $15.9 billion compared to $15.5 billion in 2022. Distributable cash flow (DCF) should be close to the 2022 results of $5.42 per share.
Management expects EBITDA to expand by about 5% per year over the medium term, driven by $19 billion in capital investments, strategic acquisitions, and efficiency improvements across the businesses.
As a result, investors should see dividend increases continue in the 3-5% range.
BCE
BCE (TSX:BCE) is another top TSX dividend stock that looks oversold. The share price is currently below $55 per share compared to more than $73 at one point last year. The drop is giving investors a chance to get a 7% dividend yield from the communications giant. BCE raised its dividend by at least 5% in each of the past 15 years.
The stock is down due to the impact of soaring interest rates and some revenue challenges in the media business. Higher rates make borrowing more expensive for companies like BCE that use debt as part of their funding strategy to finance capital investments. BCE is spending billions of dollars on network upgrades, including its 5G mobile network and the expansion of the fibre-to-the-premises program. Higher borrowing costs can put a dent in profits and cash flow available for distributions.
BCE is trimming headcount to adjust to the lower ad spending in the media group and expects profits to decline in 2023. However, the core mobile and internet subscription businesses remain strong, and BCE expects full-year revenue and free cash flow to be above the 2022 results.
This should support another decent dividend increase for 2024.
The bottom line on top dividend stocks for passive income
Enbridge and BCE are industry leaders paying great dividends that should continue to grow. If you are searching for high-yield stocks to buy to help offset the impact of inflation, these stocks look cheap today and deserve to be on your radar.
