Better Buy for Passive Income: BNS Stock or TC Energy?

These two stocks appear oversold today for investors seeking passive income.

| More on:
A close up image of Canadian $20 Dollar bills

Image source: Getty Images

Retirees and other investors seeking passive income are searching for high-yield TSX stocks that have good track records of dividend growth and currently appear undervalued. Bank of Nova Scotia (TSX:BNS) and TC Energy (TSX:TRP) trade well below their 2022 highs and offer attractive dividend yields today.

Bank of Nova Scotia

Bank of Nova Scotia delivered solid fiscal 2022 results that beat 2021 earnings. The stock, however, remains under pressure and now trades at an attractive 8.4 times trailing 12-month earnings.

Investors are concerned that a global recession in 2023 or 2024 could hit the international operations. This is reasonable considering the pain the division endured during the pandemic. Bank of Nova Scotia has a large presence in Mexico, Peru, Chile, and Colombia. The four members of the Pacific Alliance trade block rely heavily on oil or copper revenues, so a meaningful plunge in commodity prices caused by an economic downturn would be negative for their economies.

That being said, the international division is performing well after the pandemic slump and commodity prices could remain elevated in the next couple of years, even if the global economy contracts.

Bank of Nova Scotia’s adjusted net income for fiscal 2022 came in at $10.75 billion compared to $10.17 billion last year. The international banking group’s net income for fiscal 2022 was $2.67 billion compared to $2.16 billion in fiscal 2021.

Bank of Nova Scotia trades near $68 per share at the time of writing compared to $95 at the 2022 high. The stock looks cheap and investors who buy BNS stock at the current level can get a 6% dividend yield.

TC Energy

TC Energy is having a rough 2022. The stock recently tanked on news that the Coastal GasLink pipeline project is considerably over budget. An update is on the way in early 2023, but the company says the project is on track for mechanical completion by the end of 2023, and there shouldn’t be an impact on the planned dividend increases of 3-5% per year over the medium term.

TC Energy has a $34 billion capital program on the go and is considering $5 billion in non-core asset sales in 2023 to meet capital needs.

The company is also dealing with an oil spill from its Keystone pipeline in the United States. Pundits think a sale of the pipe could be part of the monetization plan.

Despite the near-term challenges, TC Energy is positioned well to benefit from rising domestic and international demand for North American natural gas. The company has more than 90,000 km of gas pipelines and extensive natural gas storage capacity in Canada, the United States, and Mexico.

TC Energy stock trades near $58 per share compared to $74 in June. Investors who buy the stock at the current price can get a 6.2% dividend yield.

Is one a better buy for passive income?

Bank of Nova Scotia and TC Energy pay attractive dividends that should continue to grow. Near-term risks remain for both stocks, but they appear undervalued right now for buy-and-hold investors. At the current share prices, I would probably split a new investment between the two stocks.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

The Motley Fool recommends Bank Of Nova Scotia. The Motley Fool has a disclosure policy. Fool contributor Andrew Walker has no position in any stock mentioned.

More on Investing

Golden crown on a red velvet background
Dividend Stocks

Here Are My Top 5 Dividend Aristocrats to Buy Right Now

Canadian National Railway (TSX:CNR) is a Dividend Aristocrat with 27 years of dividend growth.

Read more »

Woman has an idea
Dividend Stocks

The Smartest Canadian Dividend Stocks to Buy With $500 Right Now

Besides their years-long dividend-growth track record, the strong fundamentals of these Canadian dividend stocks make them really attractive to buy…

Read more »

Electricity pylons against a sunset
Energy Stocks

Northland Power Stock: Buy, Sell, or Hold?

Northland Power (TSX:NPI) stock continues to climb on the back of strong earnings, but with a CEO and president leaving,…

Read more »

Caution, careful
Cannabis Stocks

I Wouldn’t Touch This TSX Stock With a 60-Foot Pole

I wouldn't touch Canopy Growth Corp (TSX:WEED) stock with a 60-foot pole.

Read more »

retirees and finances
Dividend Stocks

No, the CPP Didn’t Squander $46 Billion of Taxpayer Money

The Globe and Mail claimed that the CPP Board mismanaged Canadians' money, but it beat the returns earned by the…

Read more »

Hands shaking over a business deal
Tech Stocks

Meet the Growth Stock I Can’t Stop Buying This Year

Topicus stock (TSXV:TOI) has been a top growth stock this year, with strong finances, a stable acquisition strategy, and more…

Read more »

Stocks for Beginners

Up Over 25% After Earnings! Is Canada Goose Stock a Good Buy Now?

These important fundamental factors could help Canada Goose (TSX:GOOS) stock continue soaring in the long term.

Read more »

A bull outlined against a field
Stocks for Beginners

Bull Market Buys: 3 Magnificent Stocks to Own for the Long Run

These three stocks should be some of the first to bounce back in a bull market, which makes now a…

Read more »