Passive Income: Top TSX Dividend Stocks to Buy for 7% and 8% Yields
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High interest rates drove a pullback in the share prices of several top Canadian dividend stocks over the past two years. As rates start to decline, a meaningful rebound could be on the way.
Many TSX dividend stocks still appear undervalued and offer high yields for investors seeking passive income to fund their retirement.
TC Energy
TC Energy (TSX:TRP) trades near $53 per share at the time of writing. The stock was above $73 two years ago before the Bank of Canada and the U.S. Federal Reserve aggressively raised interest rates just as TC Energy needed to borrow billions of dollars to complete its 670 km Coastal GasLink pipeline project that saw its budget more than double to about $14.5 billion.
TC Energy just announced a successful $7.15 billion bond sale to refinance loans. In addition, the company sold interests in some U.S. assets for $5.3 billion last year and is on track to monetize another $3 billion in 2024. TC Energy is also moving ahead with the spinoff of its oil pipeline group.
These efforts should help shore up the balance sheet to enable TC Energy to make progress on its remaining growth program. Investments are expected to be about $8 billion in 2024 and level off at a run rate of $6 billion to $7 billion over the next few years. As the new assets start generating revenue, there should be enough cash flow growth to maintain steady dividend increases in the 3% range.
TC Energy raised the dividend in each of the past 24 years. The stock currently offers a 7.2% dividend yield.
BCE
BCE (TSX:BCE) dropped from $74 per share at the high point in 2022 to as low as $44 this year. The decline has been painful to watch for pensioners and other investors who have held BCE for decades.
Higher interest rates are to blame for much of the pain, although BCE has also faced some challenges in its media group.
The jump in borrowing costs drove up debt expenses. BCE uses debt to fund part its capital program that reaches billions of dollars every year. Elevated debt expenses cut into profits and reduce cash available for distributions. This is one reason the board raised the dividend by 3.1% this year instead of by the 5% average investors received in the previous 15 years.
Declining ad revenue in the media group has also been a factor. BCE closed or sold dozens of radio stations, trimmed television programming, and reduced staff by about 6,000 positions over the past 12 months. These moves should help the company meet its financial goals in 2024 and 2025.
Headwinds persist, but BCE says it expects 2024 revenue and adjusted earnings before interest, taxes, depreciation, and amortization to meet or exceed 2023 results. Based on this guidance, the decline in the share price is probably overdone.
Investors who buy BCE stock at the current level can get a dividend yield of 8.8%.
The bottom line on top stocks for passive income
Ongoing volatility should be expected, but TC Energy and BCE already trade at discounted prices and now offer attractive yields. If you have some cash to put to work in a portfolio targeting high-yield passive income, these stocks deserve to be on your radar.
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The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. Fool contributor Andrew Walker owns shares of BCE.