Dividend stocks on the TSX are starting to catch a new tailwind as investors bet that interest rates will fall in the coming quarters. Investors seeking high yields for portfolios targeting passive income and total returns are wondering which stocks might still be undervalued and good to buy right now.
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Enbridge
Enbridge (TSX:ENB) trades for close to $49 per share at the time of writing. The stock is up from the 12-month low of around $43 but is still way down from the $59 it fetched in 2022 before the central banks in Canada and the United States aggressively raised interest rates in the back half of 2022 and through much of 2023.
With inflation now heading in the right direction, the Bank of Canada recently lowered its interest rate by 0.25%, and the U.S. Federal Reserve is expected to follow that lead in the coming months. Rate cuts reduce borrowing costs for companies like Enbridge that use debt to fund part of their large growth programs, including takeovers and capital projects. Lower debt expenses support profits and make more cash available for distributions.
Enbridge expects distributable cash flow (DCF) to grow by 3% annually for the next couple of years and by 5% after 2026. This should drive ongoing dividend growth. Enbridge raised the dividend in each of the past 29 years. Investors who buy ENB stock at the current level can get a dividend yield of 7.4%.
TC Energy
TC Energy (TSX:TRP) is another energy infrastructure player that is attracting renewed interest from investors after a sharp decline. The stock traded near $74 in June 2022 before falling as low as $44 last year. The share price is back up to $55 and more gains should be on the way.
As with Enbridge, the reduction in borrowing costs will help TC Energy as it works through a large capital program. TC Energy expects to invest roughly $8 billion in 2024 and $6 billion to $7 billion per year over the medium term. As new assets go into service, there should be adequate cash flow growth to raise the dividend at a steady pace. TC Energy increased the distribution in each of the past 24 years.
Investors who buy TRP stock at the current price can get a 7% dividend yield.
Telus
Telus (TSX:T) has also raised its dividend annually for more than two decades. The communications provider lowered its financial guidance last year due to some revenue challenges at its Telus International subsidiary, but Telus still delivered solid 7.6% growth in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). Adjusted EBITDA growth in 2024 is expected to be 5.5% to 7.5%, so the company is performing well despite some headwinds.
Telus stock trades near $21.50 at the time of writing compared to $34 at the high point in 2022. Investors can get a 7.2% yield right now.
The bottom line on top dividend stocks
Enbridge, TC Energy, and Telus all pay attractive dividends that should continue to grow. If you have some cash to put to work in a portfolio targeting high dividend yields, these stocks deserve to be on your radar.
