A rotation back into TSX dividend stocks started last fall and has recently picked up momentum on the back of two interest rate cuts by the Bank of Canada. Investors who missed the bounce are wondering which Canadian dividend stocks might still be undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA).
TC Energy
TC Energy (TSX:TRP) trades near $60 per share at the time of writing compared to $45 in October last year and is up more than 12% in the past month.
Looking ahead, lower borrowing costs from interest rate cuts will improve the bottom line and can free up more cash to pay distributions or reduce debt. This should help the tailwind behind the stock. TC Energy’s stock is also getting a boost as investors react positively to the company’s progress on reducing debt and shoring up the balance sheet to pursue the growth program.
TC Energy had to take on extra debt when the budget for its 670 km Coastal GasLink project more than doubled to about $14.5 billion. The pipeline reached mechanical completion last year, and Coastal GasLink successfully raised $7.15 billion in a bond issue in 2024 to refinance loans that were taken to get the project completed. TC Energy also monetized $5.3 billion in non-core assets in 2023 and is on track to raise another $3 billion this year through asset sales. In addition, shareholders have approved a planned initial public offering of the oil pipeline business.
TC Energy intends to invest $6 billion to $7 billion annually over the medium term on growth initiatives. This should drive revenue and cash flow growth to support steady dividend increases. The board has raised the dividend in each of the past 24 years.
Investors who buy the stock at the current level can get a 6.4% dividend yield. TRP traded as high as $74 in 2022, so there is decent upside potential.
Fortis
Fortis (TSX:FTS) operates roughly $69 billion in assets across Canada, the United States, and the Caribbean. The businesses include power generation, electric transmission, and natural gas distribution utilities.
Fortis grows through a combination of acquisitions and organic projects. It has been several years since the company bought a large business, but a decline in borrowing costs in Canada and the United States could put targets on the radar. In the meantime, Fortis is working through a $25 billion capital program that is expected to increase the rate base from $37 billion in 2023 to $49.4 billion in 2028. The resulting boost to cash flow should support planned annual dividend increases of 4-6%. Fortis raised the payout annually for the past 50 years.
The stock trades just under $59 at the time of writing, up about 8% in the past month. However, it is still well below the $65 it hit in 2022. Investors who buy at the current level can get a dividend yield of 4%.
The bottom line on top TSX dividend stocks
TC Energy and Fortis are good examples of top TSX dividend-growth stocks that have good upward momentum. If you have some cash to put to work in a TFSA, these stocks still look attractive and deserve to be on your radar.
