The pullback in the share prices of several top Canadian dividend stocks is giving retirees and other investors seeking passive income a chance to buy great TSX dividend stocks at cheap prices for a self-directed Tax-Free Savings Account (TFSA).
Buying stocks on dips takes courage and requires patience, as share prices can continue to slide before they bottom out. However, top dividend-growth stocks tend to raise their distributions through difficult economic times and usually recover their losses when the market recovers. Taking advantage of a market correction can result in above-average dividend yields while giving investors a shot at decent long-term capital gains.
Enbridge
Enbridge (TSX:ENB) is a major player in the North American energy infrastructure industry with vast pipeline networks that transport about 30% of the oil produced in Canada and the U.S. and 20% of the natural gas consumed by Americans. The assets are strategically important for the smooth operation of the Canadian and U.S. economies.
Enbridge stock trades near $43.50 at the time of writing compared to $59 at the high point last year.
Getting new large pipeline projects approved and built is very difficult in the current era, and that is unlikely to change. In fact, the few big projects that are currently under construction across the industry could be the last ones. This means the existing infrastructure should increase in value in the coming years. Demand for oil and natural gas is expected to grow, even as the world transitions to renewable energy.
Enbridge’s pipelines and export assets position the company to benefit from the upward consumption trend. At the same time, Enbridge is expanding its renewable energy portfolio to boost its solar and wind portfolios.
Finally, Enbridge recently announced a US$14 billion deal to acquire three natural gas utilities in the United States. These businesses deliver rate-regulated revenue streams that should be steady in all economic conditions. When combined with the existing utility businesses in Canada, the new acquisitions will make Enbridge the largest natural gas utility operator in North America.
Management expects the new utilities and the ongoing capital program to drive revenue and cash flow growth in the coming years. This should support the dividend.
Investors who buy ENB stock at the current price can get a yield of 8%.
BCE
BCE (TSX:BCE) is Canada’s largest communications firm with a current market capitalization of close to $46 billion. The stock is down considerably in the past five months, falling from $65 per share in May to the current price near $50.50.
The drop is largely due to rising interest rates. BCE uses debt to fund part of its large capital program. The company spent about $5 billion last year on projects that include the 5G network and the running of fibre optic lines to the premises of customers. These initiatives should drive future revenue and cash flow growth while helping protect BCE’s capital position.
Higher debt costs are going to contribute to a drop in adjusted earnings per share this year in the range of 3-7%. Troubles in BCE’s media group, which includes a television network, specialty channels and radio stations, will also hit the bottom line.
That being said, strong performances in the mobile and internet groups should enable BCE to generate higher revenue and free cash flow in 2023. This should support the dividend.
BCE raised the payout by at least 5% in each of the past 15 years. At the current share price, investors can get a 7.6% dividend yield.
The bottom line on top stocks for passive income
Enbridge and BCE are good examples of top TSX dividend stocks with attractive dividends that should continue to grow. If you have some cash to put to work in a TFSA targeting passive income, these stocks deserve to be on your radar.
