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TFSA Passive Income: 2 High-Yield Canadian Stocks to Own for Decades

Increasing yield
Image source: Getty Images

Written by Andrew Walker at The Motley Fool Canada

Retirees seeking passive income and younger investors focused more on total returns can take advantage of the market correction to buy top TSX dividend stocks at discounted prices for their self-directed Tax Free Savings Account (TFSA) portfolios.

BCE

BCE (TSX:BCE) is Canada’s largest communications company with a current market capitalization near $59 billion. The stock trades for close to $64 per share at the time of writing compared to a 2022 high of $74.

BCE stock is above the 12-month low, but investors can still secure a solid 6% dividend yield and wait for distribution increases to boost the return on the initial investment. BCE increased the dividend by at least 5% in each of the past 15 years.

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The company’s core revenue stream comes from essential mobile and internet service subscriptions. This means the stock should be good to own during an economic downturn. People and businesses need to communicate and stay connected to the world regardless of the situation in the economy. BCE’s media group, however, is more susceptible to revenue fluctuations. Advertisers tend to reduce their marketing budgets when times get tough. Hardware purchases can also decline during a recession if consumers decide to keep older phones for longer.

BCE reported solid first-quarter (Q1) 2023 results, despite the current economic headwinds. Consolidated revenue increased 3.5% compared to Q1 2022. Wireless service revenue rose 5.4% and consumer internet revenue jumped 10%. This helped offset a 5.5% decrease in operating revenue in the media business due to lower advertising revenue and a drop in subscriber revenues.

The sharp rise in interest rates over the past year is driving up borrowing costs. This is expected to lead to a 3-7% decline in adjusted earnings per share in 2023. However, BCE predicts it will see overall revenue grow in 2023 and free cash flow guidance is for an increase of 2-10%.

As such, investors should see another decent dividend materialize in 2024.

TC Energy

TC Energy (TSX:TRP) is a major player in the North American energy infrastructure industry with 93,000 km of natural gas pipelines and 650 billion cubic feet of natural gas storage capacity in Canada, the United States, and the Caribbean. The company also has oil pipelines and power-generation facilities.

TRP stock trades near $56 per share. That’s up from the 12-month low around $51 but still down considerably from the $74 it hit last year.

Weakness has largely occurred due to problems on a major project. TC Energy’s Coastal GasLink pipeline will eventually transport natural gas from producers in northeastern British Columbia to a liquified natural gas (LNG) facility on the B.C. coast. Unfortunately, costs have soared on the project due to pandemic delays, rising material prices, issues with contractors, and challenging weather conditions.

In the most recent update, TC Energy said the total cost is expected to be at least $14.5 billion. That’s more than double the original estimate. The final tally could be more if construction drags into 2024. TC Energy recently paused work on the pipeline due to erosion issues caused by the spring melt in British Columbia.

On the positive side, the project is 87% complete, so there is light at the end of the tunnel. TC Energy reported strong Q1 2023 results and reaffirmed its full-year 2023 guidance of 5-7% growth in comparable earnings before interest, taxes, depreciation, and amortization.

Management plans to increase the dividend by at least 3% per year over the medium term. The board has raised the payout annually for more than two decades. Investors who buy the stock at the current level can get a 6.6% dividend yield.

The bottom line on top stocks to buy for passive income

BCE and TC Energy pay attractive dividends that should continue to grow. If you have some cash to put to work in a TFSA focused on dividends, these stocks deserve to be on your radar while they remain out of favour.

The post TFSA Passive Income: 2 High-Yield Canadian Stocks to Own for Decades appeared first on The Motley Fool Canada.

Should You Invest $1,000 In BCE?

Before you consider BCE, you'll want to hear this.

Our market-beating analyst team just revealed what they believe are the 5 best stocks for investors to buy in April 2023... and BCE wasn't on the list.

The online investing service they've run for nearly a decade, Motley Fool Stock Advisor Canada, is beating the TSX by 21 percentage points. And right now, they think there are 5 stocks that are better buys.

See the 5 Stocks * Returns as of 4/18/23

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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.

2023