Falling interest rates could push TSX dividend stocks higher in 2025. Investors who missed the bounce off the 12-month lows are wondering which high-yield Canadian dividend stocks might still be undervalued and good to buy for a self-directed, Tax-Free Savings Account portfolio targeting passive income.
Telus
Telus (TSX:T) trades near $22.50 at the time of writing compared to $34 at its peak in 2022 before the Bank of Canada aggressively raised interest rates to try to get inflation under control.
Higher borrowing costs drive up debt expenses and can cut into profits while reducing cash that is available for distributions. This is a big reason the stock slipped over the past two years. In addition, Telus Digital, a subsidiary formerly called Telus International, has struggled with falling revenue from its global clients. The group’s challenges forced Telus to lower guidance last year and continue to put pressure on results in 2024.
With inflation back down to the 2% target, the Bank of Canada is cutting interest rates. This will help Telus retain more cash. In addition, lower operating expenses due to the elimination of roughly 6,000 positions should provide additional support for earnings in 2025. The company still expects adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to increase in 2024 compared to last year, so the market reaction to the Telus Digital issues might be overdone. Investors who buy Telus at the current level can get a dividend yield of 6.9%
TC Energy
TC Energy (TSX:TRP) trades near $63.50 at the time of writing. The stock is up nearly 40% in the past year but is still off the $74 it reached in 2022.
TC Energy’s 670 km Coastal GasLink pipeline reached mechanical completion late last year and is expected to go into commercial operations in 2025. The pipeline will carry natural gas from Canadian producers to a new liquified natural gas export facility being built on the coast of British Columbia. Revenue from the pipeline, along with other new capital projects over the coming years, should support steady dividend growth.
TC Energy has done a good job of reducing debt taken on to get Coastal GasLink finished and continues to monetize non-core assets to shore up the balance sheet and fund the growth program.
Investors who buy TRP stock at the current level can get a dividend yield of 6%. The board has increased the payout in each of the past 24 years.
The bottom line
Telus and TC Energy are good examples of top dividend stocks that pay attractive and growing distributions. If you have some cash to put to work in a TFSA focused on high dividend yields, these stocks deserve to be on your radar.
