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Better Dividend Buy: BCE (TSX:BCE) or Enbridge (TSX:ENB)

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Written by Andrew Walker at The Motley Fool Canada

Pensioners and other TSX dividend investors seeking reliable passive income are wondering if the recent market correction is a good opportunity to add BCE (TSX:BCE) or Enbridge (TSX:ENB) stock to their self-directed Tax-Free Savings Account (TFSA) portfolios.

BCE

BCE stock trade near $63 per share compared to $73 in April last year. The stock is actually off the 12-month low of about $56 it hit in October, but even after the bounce the pullback still looks overdone.

BCE should be a good stock to own during a recession. The bulk of the revenue stream comes from mobile and internet subscription services. These are required by businesses and residential clients regardless of the state of the economy. Streaming and TV subscriptions might be more at risk of a cut, but most people will slash spending on other discretionary items before giving up their in-home entertainment. In addition, the TV service is usually bundled with the mobile and internet, so cutting it out might not save much money.

This doesn’t mean BCE is immune to an economic downturn. BCE’s media group, which includes a television network, radio stations, specialty channels, sports teams, and digital platforms is already seeing customers reduce ad spending as they battle with high inflation and rising borrowing costs. This trend could continue if businesses start to see a meaningful decline in consumer spending in the next 12-18 months.

Recession fears and a drop in adjusted earnings are likely the reason the stock is down, but BCE has the power to increase prices for its core wireline and wireless services when it needs more cash and the guidance for 2023 calls for revenue and free cash flow to actually increase compared to 2022. Earnings are forecast to dip a bit, but BCE remains very profitable, and investors should still see a decent dividend hike next year.

The board raised the payout in each of the past 15 years with an annual increase of at least 5%. At the time of writing, BCE stock provides a 6.1% dividend yield.

Enbridge

Enbridge trades for less than $50 per share at the time of writing compared to $59.50 at the peak last year.

The latest downward leg is due to fears that one of the company’s main pipelines, Line 5, could be temporarily shut down as a result of erosion near the line in Wisconsin. This could send the stock price lower in the near term, but the pullback already appears overdone.

Enbridge generated solid first-quarter (Q1) 2023 results that were in line with the same period last year. The $17 billion capital program and a new agreement with producers to secure space on the Mainline system for several years should help support targeted earnings and cash flow growth of about 3% through 2025 and 5% beyond that timeline.

As a result, investors should see the streak of 28 consecutive annual dividend increases continue. At the current share price, the existing dividend provides an annualized yield of 7.1%.

Is one a better buy today?

BCE and Enbridge pay solid dividends that should continue to grow. Both stocks appear cheap right now and deserve to be on your radar for a TFSA focused on passive income. If you only buy one, I would probably make Enbridge the first choice today. The stock looks oversold and the 7% yield is very attractive.

The post Better Dividend Buy: BCE (TSX:BCE) or Enbridge (TSX:ENB) appeared first on The Motley Fool Canada.

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Fool contributor Andrew Walker owns shares of BCE and Enbridge.

2023