If you’re a Canadian passive income investor who could afford to give themselves a nice raise going into the new year, there are numerous options to pick from on the TSX Index. While the Canadian stock market has notably lagged the U.S. markets (most notably the S&P 500, but especially the tech-heavy Nasdaq 100 exchange), I’d argue that one thing the Canadian market has over the American one is that there are some pretty huge dividend yields out there, at least on average.
Undoubtedly, if you’re a Canadian income investor, the TSX Index is where you’ll want to be. Not just because of the fatter, fancier, and, often, cheaper dividend stocks, but because the exchange rate isn’t all too favourable. Indeed, US$0.68 may not be out of the question for the Canadian dollar if Trump tariffs do come to be. At the same time, some breaths of relief may be in the cards should tariffs be less widespread.
When it comes to such near-term unpredictabilities, I’d say you’re better off not trading them and, instead, playing the long-term game, which entails buying on any meaningful dips with the intent of holding for the years and decades to come. If you’re looking at a dividend yield heavyweight, you stand to be compensated pretty well for your time, even if the stock in question ends up treading water for another few quarters or years.
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BCE and Telus: The battle of the yield giants
Regarding Canada’s top dividend yield plays, it’s tough not to bring the leading telecom firms into the conversation. Right now, BCE (TSX:BCE), with its borderline shocking 10.5% dividend yield, and Telus (TSX:T), with a smaller but still very impressive 7.4% yield, seem to be screaming buys for passive income investors who want a nice payout attached to their blue chips.
Indeed, BCE and T shares may have lost their lustre in a massive way in the past few years, but they’re still blue-chip titans that are eager to find a way forward. And with so much pessimism driving down their share prices, I’d argue that they’re terrific contrarian bets for those who want to bolster their income.
While I wouldn’t back up the truck on either telecom stock for their yields, I do find valuations to be so depressed that it’s starting to get absurd. Is the industry under pressure from multiple fronts? Definitely.
Personally, I think those willing to settle for the lower yield (7.4% vs. BCE’s 10.5%) should go with Telus stock. I view it as the less-risky turnaround play that looks to have the better-covered dividend.
Further, the company’s latest dividend hike, I believe, showed the crowds that it’s serious about keeping its dividend “promise” to investors amid trying times.
In a prior piece, I viewed the move as a massive vote of confidence. I still think it could be the deciding factor for investors split between the two telecom titans. Further, I think it speaks a great deal about the potential relief that could be in the cards over the next few years. It’s not just about lower interest rates, either.
And the winner is… Telus.
Personally, I think that Telus’s plan to prioritize what it deems as its “most important customers” is a winning game plan that could help the stock get back on the right track.
And while I’m not against buying shares of both T and BCE stock in one go, I must say I’m a bigger fan of the former, even if it means getting over 3% less yield. Who knows? BCE’s dividend may very well be skating on thin ice as the dividend-cut headlines (I’ve seen at least three in the past month) keep flowing in going into 2025.
