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Up to now, 2024 has been fairly good for many TSX shares. The TSX Index is up 4.7% this yr. Whereas the outlook for Canadian shares continues to be respectable for the rest of the yr, buyers must be choosey what sectors and shares they personal.
There proceed to be some nasty headwinds, particularly for sectors which might be debt-heavy and have vital regulatory oversight. Listed here are three well-known dividend shares that I wouldn’t contact with a 10-foot pole proper now.
The primary TSX inventory to be very cautious about is BCE (TSX:BCE). Many dividend buyers is likely to be tempted by its large 8.6% dividend yield. Many buyers want to consider that the inventory’s $41 billion market cap makes it too large to fall additional or too large to chop its dividend.
Properly, for context, it was a $65 billion firm solely two years in the past. Nothing stopped it from shedding over 35% of its worth. BCE is going through headwinds from quite a few angles.
Its growth into media has not paid off. These companies have considerably underperformed and been a drag on earnings. It has been a compelled vendor of a number of media property at low valuations.
BCE has been gradual to right-size its value construction. After years of great capital funding, it’s loaded with debt, and excessive rates of interest are consuming its backside line. It’s only via the primary spherical of layoffs, however extra are coming.
Lastly, BCE’s dividend will not be even near being maintain by earnings or free money circulation. Up to now, it has relied on low cost financing capital to assist its aggressive dividend progress. That capital will not be obtainable anymore. In consequence, it’s tough to grasp how this TSX inventory will assist its present dividend and even develop it.
A utility inventory that may’t discover its means
One other TSX inventory I wouldn’t contact proper now’s Algonquin Energy and Utilities (TSX:AQN). It might foreshadow what might occur to BCE. Algonquin took on an excessive amount of variable debt to finance an aggressive renewable and utility progress technique. That fell aside when rates of interest quickly soared in 2022.
At one level, Algonquin inventory yielded 8.2%. It reduce its dividend by 40% and fired its govt group. The issue is that the corporate continues to be in a no-man’s land.
Even after its dividend was reduce, its yield has been creeping up. This simply signifies that buyers proceed to be fearful about its skill to monetize property, decrease its debt, and return to a sustainable/worthwhile technique.
A prime TSX financial institution inventory that retains operating into hassle
Toronto-Dominion Financial institution (TSX:TD) has been a stalwart for dividends in Canada for the previous a number of many years. The financial institution has executed an incredible job of changing into a prime banking model in Canada and the U.S.
Nonetheless, just lately, the financial institution has strayed. Whether or not or not it’s the just lately botched deal to amass First Horizon Financial institution within the U.S., or the quite a few investigations into compliance and money-laundering points, the financial institution’s skill to function and execute appears suspect.
Some analysts have urged the financial institution might face as a lot as $2 billion price of fees because of these points. Whereas its dividend is probably going not in danger (like the 2 shares above), these near-term headwinds are sufficient to maintain me away from this TSX inventory.
