TFSA Passive Income: Should TC Energy or BCE Be on Your Buy List?

TC Energy (TSX:TRP) and BCE (TSX:BCE) are off their 2023 lows. Investors who missed the rally in TSX dividend stocks over the past two months are wondering if TRP stock or BCE stock is still undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) focused on passive income. TC Energy TC Energy dipped as low as $45 this year. The fourth-quarter (Q4) bounce, however, has the stock back up to $53 at the time of writing, but this is still a long way from the $74 the stock reached at the high point in 2022. Bargain hunters realized that TRP had probably fallen too far and are now looking beyond the challenges posed by high interest rates and the soaring costs that impacted a major project. TC Energy uses debt as part of its funding strategy to finance its growth program. Higher borrowing costs will put a pinch on profits and can reduce cash that is available for distributions. At the same time, TC Energy saw its budget on the Coastal GasLink projected more than double to $14.5 billion in recent years. Interest rates are likely headed lower in 2024, and TC Energy has reached mechanical completion on the Coastal GasLink project, so the worst of the pain should be in the rearview mirror. TC Energy is doing a good job of raising cash through non-core asset sales to reduce debt and shore up the balance sheet to pursue additional capital projects. The company sold a stake in some American assets for $5.3 billion in 2023 and is on track to spin off the oil pipelines business next year. Despite the tough conditions, TC Energy says the overall business performed well in 2023, and financial results will be near the top of guidance. Investors should also be relieved to know that management still expects growth projects to support planned annual dividend increases of at least 3%. TC Energy has raised the payout annually for more than two decades. At the current share price, the stock offers a 7% dividend yield. BCE BCE has been on quite a ride since hitting $65 in May. Investors started to bail out, as the Bank of Canada drove interest rates higher through the summer months and into the fall. At one point, BCE dipped below $50 before recovering back to around $55.50. In the past two weeks, however, BCE has given up about $4 per share and now trades close to $51.50. Higher borrowing costs are to blame for the bulk of the drop since the spring, although BCE is also seeing weaker revenue in the media business. The latest decline could be the result of investor concerns that heavy discounting on mobile plans in November could lead to a weak outlook in 2024. BCE’s guidance for 2023 is for a small decline in earnings per share, but overall revenue and free cash flow should be better than 2022, unless there is a material change to end the year. Investors who buy the latest pullback can get a 7.5% dividend yield from BCE. The board has increased the payout by at least 5% annually for the past 15 years. At the very least, the distribution should be safe. Is one a better pick? TC Energy and BCE both pay attractive dividends that should be safe and now offer attractive yields for a portfolio focused on passive income. TC Energy likely has better dividend-growth prospects over the next couple of years, while BCE currently offers a higher yield. At today’s share prices, I would probably split a new investment between the two stocks.

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