BCE (TSX:BCE) and Enbridge (TSX:ENB) have long track records of dividend growth and pay generous distributions that are popular for portfolios targeting passive income. Investors with some cash to put to work are wondering if BCE stock or ENB stock is currently undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) focused on dividends.

BCE

BCE saw its share price plunge over the past two years as rising interest rates drove up borrowing costs. At the time of writing, BCE trades near $47 per share compared to $74 at the high point in 2022.

The communications giant uses debt to fund part of its capital program, including the expansion of fibre optic lines to the premises of its customers and the rollout of the 5G network. Canada is a large country, so it is expensive for BCE and its peers to build world-class communications infrastructure that reaches the majority of the population.

At the same time, BCE's media business is struggling with reduced advertising revenue. Price wars in the mobile segment are also having an impact.

On the positive side, BCE recently announced a deal to sell its stake in Maple Leaf Sports and Entertainment (MLSE) for $4.7 billion. The cash will be used to reduce debt, which should ease concerns about the safety of the dividend. BCE expects 2024 revenue and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to be largely in line with 2023 despite the challenging environment. Management trimmed staff levels considerably in the past year and sold or closed dozens of radio stations. These moves will reduce operating expenses in 2025. Falling interest rates will lower borrowing costs and can free up more cash to support the distribution to shareholders.

Investors who buy BCE stock at the current level can get a dividend yield of 8.4%.

Enbridge

Enbridge also uses debt to fund its growth program, which includes acquisitions and development projects. The drop in interest rates in Canada and the United States should make more cash available for distributions and debt reduction.

Enbridge trades near $55 per share at the time of writing compared to the 12-month low of around $43. It is closing in on the $59 it reached in 2022 before the pullback.

Enbridge is in the process of completing the final part of its $14 billion acquisition of three natural gas utilities in the United States. The company also has a $25 billion capital program on the go that will help boost revenue and cash flow in the coming years.

The oil pipeline business has new competition from the recently completed Trans Mountain pipeline. This has led to a reduction in toll fees in order for Enbridge to continue to attract volume on its system. Enbridge's oil and natural gas pipeline assets remain strategically important for the Canadian and American economies, so some of the concerns about volumes and revenue might be overblown. In addition, the company has shifted capital investments to renewables, exports, and natural gas utilities in recent years to diversify the revenue stream.

Enbridge isn't as cheap as it was a year ago, but investors can still get a 6.7% yield on the stock, and annual dividend growth should be in the 3% to 5% range over the medium term.

Is one a good pick today?

BCE is arguably the riskier choice right now, so investors need to keep this in mind. However, the stock is probably oversold at this level, and the $4.7 billion cash infusion from the sale of the MLSE stake will ease pressure on the balance sheet when the deal closes next year. If you think the dividend is safe, the 8.4% yield is attractive today.

Enbridge has had a big move off the 12-month low. As long as interest rates continue to decline in the U.S. and Canada, the stock will likely trend higher over the next couple of years. In the near term, however, a broad-based decline in the overall market should be expected, given the extent of the rally this year, so investors might see a better entry point emerge in the coming months. That being said, you can get a solid 6.7% yield right now and wait for the dividend increases to boost the return on the initial investment.

Contrarian income investors might want to make BCE the first choice today. Otherwise, ENB stock should be a solid long-term dividend pick.