The Bank of Canada just cut interest rates by another 0.25% and is signalling that more reductions are likely on the way. Top TSX dividend stocks that took a beating over the past two years should start to attract interest from bargain hunters now that rates are heading lower.
Telus
Telus (TSX:T) trades near $21.75 at the time of writing. The stock slipped as low as $20 a few weeks ago and was as high as $34 in 2022 before interest rates started to rise aggressively as the central bank worked to get inflation under control.
Inflation in Canada is now below 3% and the Bank of Canada is feeling more confident that inflation is heading back to the 2% target, so more cuts to interest rates are probably on the way later this year and in 2025.
Telus uses debt to fund part of its capital programs. As such, falling interest rates should reduce debt expenses and free up more cash for distributions to shareholders. On the operational side, Telus eliminated roughly 6,000 jobs over the past year in an effort to reduce costs and position the business to meet financial targets amid a series of headwinds, including revenue declines at its Telus International subsidiary and price wars in the Canadian market.
Despite the headwinds, Telus managed to deliver 7.6% growth in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in 2023 and is targeting adjusted EBITDA growth of at least 5.5% this year. Based on this outlook the stock is probably oversold.
Investors who buy Telus at the current price can get a 7.15% dividend yield.
TC Energy
Lower interest rates should also help pipeline companies like TC Energy (TSX:TRP) that borrow billions of dollars to fund the construction of large energy infrastructure projects that can take years to complete. TC Energy’s 670 km Coastal GasLink pipeline is a good example. The project received the green light in 2018 and didn’t reach mechanical completion until late last year. Pandemic delays and other challenges more than doubled the initial budget to roughly $14.5 billion. Now that the project is complete, TC Energy is focused on shoring up the balance sheet to pursue the rest of the capital program. The company sold interests in U.S. assets last year to raise $5.3 billion. Another $3 billion is targeted in 2024, along with the spinoff of the oil pipelines division.
TC Energy has increased the dividend in each of the past 24 years. Investors should see ongoing payout growth supported by cash flow coming from new assets, like Coastal GasLink, as they go into service. Bargain hunters who picked up the stock near $44 last year are already sitting on decent gains. Investors who buy now near $57.50 can get a solid 6.7% dividend yield. TRP stock was as high as $74 in 2022, so there is still decent upside potential.
The bottom line on top dividend stocks
Telus and TC Energy pay attractive dividends that should continue to grow. If you have some cash to put to work, these stocks deserve to be on your radar.
