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A rebound in the share prices of undervalued Canadian dividend stocks could extend for several
months, driven by recent interest rate cuts. For those seeking dividend opportunities within a self-directed Tax-Free Savings Account (TFSA), several top TSX dividend stocks might still be considered attractive.
TC Energy (TSX:TRP)
TC Energy has seen an increase of approximately 20% since mid-April, with its share price climbing to around $58. However, this remains below the $74 peak achieved in 2022, a high that was affected by aggressive rate hikes from the Bank of Canada and the U.S. Federal Reserve, which led to a decline in pipeline stocks.
The company also faced significant delays and cost overruns on its 670 km Coastal GasLink pipeline project, which saw its budget swell to an estimated $14.5 billion. To finance this, TC Energy accrued additional debt. The project reached mechanical completion late last year, with commercial operations slated to commence in 2025.
Efforts to address the debt burden have been successful, including raising $5.3 billion through asset sales last year and a plan to generate another $3 billion in 2024. Additionally, the planned spin-off of the oil pipelines division will further strengthen the company’s financial position. TC Energy is also set to allocate $6 billion to $7 billion annually over the medium term for growth initiatives.
The increase in cash flow from new assets should support continued dividend growth. The company has consistently raised its dividend for the past 24 years, and the current dividend yield stands at 6.6%.
Enbridge (TSX:ENB)
Enbridge has seen a 5% increase in its share price over the past month. Trading near $51.50, it is approaching its 12-month high of just above $52. The stock had fallen to as low as $43 during the first three quarters of 2023, down from a high of $59 before the pullback in late 2022.
A potential interest rate cut by the U.S. Federal Reserve could further drive the stock’s price upward. Similar to TC Energy, Enbridge relies on debt to fund its large capital program and strategic acquisitions. Reduced borrowing costs could boost net income and increase cash available for dividends.
Enbridge is finalizing its acquisition of three natural gas utilities in the U.S., valued at $14 billion, and has also acquired an oil export terminal in Texas and a solar and wind project developer in recent years. The company anticipates that new assets will drive distributable cash flow (DCF) growth of 3% per year through 2026, with a projected increase to 5% annually thereafter. This suggests that the dividend hike streak may continue into its third decade. The current dividend yield for ENB stock is 7.1%.
