Retirees and other income investors are searching for top TSX dividend stocks to add to self-directed Tax-Free Savings Account (TFSA) portfolios. Rate cuts by the Bank of Canada have put a new tailwind behind undervalued Canadian dividend stocks that pulled back in the past couple of years. Investors who missed the recent bounce, however, can still find good dividend deals.
Fortis
Fortis (TSX:FTS) provides a lower dividend yield than some other income stocks, but the steady dividend growth is hard to beat and each distribution hike raises the yield on the original investment. Fortis has given investors a dividend boost in each of the past 50 years and more gains are on the way.
Fortis is working on a $25 billion capital program that will increase the rate base from $37 billion in 2023 to $49.4 billion in 2028. As the new assets go into service, the bump to cash flow should support annual dividend increases in the 4-6% range, according to the company’s guidance. Management has additional projects under consideration that could get the green light and would extend the growth outlook. Fortis also has a good track record of making strategic acquisitions to drive growth. Borrowing costs are expected to decline in the United States and Canada over the course of the next year. This could spark more consolidation in the utility sector.
Fortis operates $69 billion in assets across Canada, the United States, and the Caribbean. The businesses include power generation sites, electricity transmission networks, and natural gas distribution utilities.
Fortis trades near $59.50 at the time of writing compared to $65 at one point in 2022 before it pulled back to $50 last fall. Investors who buy at the current level can get a yield of about 4%.
BCE
BCE (TSX:BCE) is arguably a contrarian pick today. The stock tanked from $74 in 2022 to as low as $43 last month. Bargain hunters moved in over the past few weeks in anticipation of more rate cuts by the Bank of Canada, and BCE now trades near $47. At the current levels, the dividend provides a yield of 8.5%.
BCE stock isn’t without risk. High interest rates have pushed up borrowing costs and are eating into profits. The rate pain, however, should ease in the coming quarters. Operationally, BCE’s media division has struggled with falling advertising revenue across the radio and television platforms. This situation probably won’t improve much in the near term, but BCE made aggressive cuts to the radio assets in the past year and has trimmed television programming to adjust to the current reality. The company has also reduced staff levels by about 6,000 positions. These efforts should help BCE hit its financial targets in 2024 and next year.
Price wars in the mobile and internet businesses might extend through the end of 2024 and into 2025, but BCE is large enough to ride out the challenges, as it has in these situations in the past, and margins will eventually stabilize.
BCE raised the dividend by 3.1% for 2024. The average annual dividend increase in the previous 15 years was about 5%. Management is calling for flat to higher revenue and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in 2024 compared to last year. Assuming the company hits these targets, the dividend should be in good shape heading into next year.
The bottom line on top TSX dividend stocks
Fortis and BCE pay attractive dividends that should continue to grow. If you have some cash to put to work in a TFSA targeting passive income, these stocks still look cheap and deserve to be on your radar.
