Investors looking to generate passive income in their Tax-Free Savings Account (TFSA) or total returns in a self-directed Registered Retirement Savings Plan (RRSP) have an opportunity to buy great TSX dividend stocks at discounted prices to start 2024.
Enbridge
Enbridge (TSX:ENB) is a giant in the North American energy infrastructure industry with a current market capitalization of more than $100 billion. Assets include oil pipelines, natural gas transmission and distribution, renewable energy, and export businesses.
ENB stock had a rough ride in 2023, despite the strong performance of the overall business. The shares trade near $48 at the time of writing compared to a high of around $59 in 2022.
Enbridge expects to generate modest but steady growth in distributable cash flow (DCF) and earnings before interest, taxes, depreciation, and amortization (EBITDA), supported by revenue and cash flow gains coming from the $25 billion capital program and acquisitions. This should support the dividend in the coming years. Enbridge increased the dividend by 3.1% for 2024. That marks the 29th consecutive annual increase in the payout.
Rising interest rates are to blame for the drop in the share price last year. Enbridge uses debt to fund part of its growth program, so higher borrowing costs can put a dent in profits. Markets are now starting to bet on cuts to interest rates in Canada and the United States later this year. As rates begin to decline, investors will likely shift funds back into top high-yield dividend stocks due to the drop in rates from no-risk alternatives, such as Guaranteed Investment Certificates (GICs). Falling bond yields have already caused a drop in GIC rates, which could continue through 2024.
Investors who buy Enbridge at the current level can get a 7.6% dividend yield.
TC Energy
TC Energy (TSX:TRP) is another pipeline stock that pulled back through most of 2023 but picked up a nice tailwind through the end of the year. The company is primarily a natural gas transmission player with more than 93,000 km of natural gas pipelines and 650 billion cubic feet of natural gas storage capacity located in Canada, the United States, and Mexico.
TC Energy also has oil pipelines and power generation facilities. Management plans to spin off the oil pipeline business into a separate company in 2024 as part of a strategy to unlock value for investors and raise funds to pursue growth projects. TC Energy brought in $5.3 billion in 2023 through the sale of a stake in some of its American assets. Those funds helped reduce debt and shored up the balance sheet.
In 2023, investors focused on the troubles the company faced with the Coastal GasLink project that saw its budget more than double to $14.5 billion. TC Energy achieved mechanical completion on the pipeline before the end of the year, so the pain on that project should now be in the rearview mirror.
TC Energy’s overall business performed well in 2023, and management is still targeting annual dividend growth of at least 3% over the medium term. TC Energy trades for close to $52 at the time of writing. That’s up from $45 in early October but still well off the $74 the stock hit at one point in 2022.
Investors can currently get a 7.1% yield from TRP stock. The board has increased the distribution annually for more than two decades.
The bottom line on top TSX high-yield stocks
Enbridge and TC Energy pay attractive dividends that should continue to grow. If you have some cash to put to work in a TFSA or RRSP, these stocks still look cheap and deserve to be on your radar.
