Telus (TSX:T) and TC Energy (TSX:TRP) have taken big hits over the past year, despite their solid track records of dividend growth. Contrarian investors seeking high dividend yields for a self-directed Tax-Free Savings Account (TFSA) are wondering if Telus stock or TRP stock is now oversold and good to buy for a portfolio focused on generating passive income.
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Telus
Telus provides mobile, internet, TV, and security services to customers across Canada.
The company wrapped up its fibre-to-copper transition program before the spike in borrowing costs but still has a $2.6 billion capital program for 2023 that includes the continued expansion of the 5G network. These initiatives should help drive future revenue and cash flow growth.
In 2023, the jump in interest rates is driving up debt costs for Telus, while Telus International, a subsidiary that offers global companies IT and multilingual call centre services, is facing a slowdown in revenue. This is largely why Telus stock is out of favour.
At the time of writing, Telus trades below $23 per share compared to more than $34 at the highest point in 2022.
Telus still expects to deliver consolidated revenue growth of at least 9.5% this year and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of at least 7%. Free cash flow is going to be close to $1.5 billion. This is lower than originally expected due to expenses connected to recently announced job cuts but is still solid.
The stock is probably oversold at this point, even as parts of the business face economic headwinds. Investors who buy Telus at the current level can get a 6.4% dividend yield.
TC Energy
TC Energy (TSX:TRP) has a capital program of $34 billion. The company is monetizing existing assets and plans to spin off its oil pipeline business to help fund the growth initiatives. Coastal GasLink, a natural gas pipeline project, is now more than 90% complete but significantly over budget. The troubles on the project, along with the steep increase in interest rates over the past year, are largely why TRP stock has pulled back from more than $70 in 2022 to the current price near $49 per share.
Management still expects to generate enough cash flow growth to support planned dividend increases of 3% to 5% per year over the medium term. TC Energy has increased the distribution annually for more than two decades, so investors should feel comfortable with the guidance.
At the time of writing, TRP stock provides a 7.5% dividend yield.
Is one a better pick?
Telus and TC Energy pay attractive dividends that should continue to grow. Both stocks appear oversold right now and deserve to be on your radar for a TFSA portfolio targeting passive income.
If you simply want to get the highest yield, the best pick right now is TC Energy. That being said, I would probably split a new investment between the two stocks at their current prices.
