Pensioners are searching for ways to get better returns on their savings. Owning stocks comes with risk, but several top TSX dividend-growth stocks now offer very high yields.
Buying stocks when everyone else is avoiding them takes some courage. Undervalued stocks can get cheaper before they recover, but there is decent upside potential for patient investors and you get paid well along the way.
BCE
The decline in the share price of BCE (TSX:BCE) from $74 in 2022 to the current level near $44 has been difficult to watch for existing owners who are often retirees seeking reliable passive income.
The decline over the past two years is primarily due to a combination of high interest rates, declining media revenues, and an uncertain regulatory environment.
On the rate front, the Bank of Canada is likely done raising interest rates in its battle to get inflation under control. Cuts are expected in 2024 to avoid pushing the economy into a recession. A drop in interest rates should be positive for BCE. The company uses debt to fund part of its capital program. Lower borrowing costs will free up more cash for distributions.
BCE announced staff cuts of more than 6,000 jobs over the past year as the business adjusts to challenges in the media group and looks to position itself to meet its goals. Ad revenue in the TV and radio segments is under pressure as customers trim marketing budgets or shift spending to digital alternatives. BCE’s digital ad revenue is climbing at a healthy clip, but it has not offset the declines in the legacy assets. Investors should see the benefits from the reduced headcount expenses in 2025.
At the same time, the government wants BCE to give small competitors access to the fibre optic lines it runs to customer homes and businesses. This issue will likely be a headwind until the next election, which must take place before the end of 2025.
These are the reasons BCE stock is under so much pressure. There could be more downside, but the stock looks oversold at this point and now offers a yield of 9%. The dividend should be safe, so investors get paid well to wait for better days.
Enbridge
Enbridge (TSX:ENB) has increased its dividend annually for nearly three decades. The energy infrastructure giant plays a key role in the smooth operation of both the Canadian and U.S. economies. Enbridge moves about 30% of the oil produced in the two countries and 20% of the natural gas used in the United States.
Recent investments have shifted away from building oil pipelines to expanding export operations, renewable energy, and utilities. Enbridge purchased an oil export terminal in Texas and has a stake in the Woodfibre liquified natural gas (LNG) facility being built in British Columbia. It also bulked up its solar and wind operations through the purchase of a U.S. renewable energy developer. In addition, Enbridge is working to wrap up the remaining part of its US$14 billion purchase of three natural gas utilities in the United States.
Management expects distributable cash flow to grow by 3% annually through 2026. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) should expand by 7-9% over the same timeframe.
Investors who buy the stock at the current level can get a 7.5% dividend yield.
The bottom line on top stocks for passive income
BCE and Enbridge pay attractive dividends that should, at the very least, be safe. If you have some cash to put to work in a portfolio focused on passive income, these stocks look cheap today and deserve to be on your radar.
