Fortis (TSX:FTS) and Bank of Nova Scotia (TSX:BNS) trade below their 12-month highs. Investors who are searching for reliable TSX dividend stocks are wondering which one might be good to buy right now for a portfolio focused on passive income.
Fortis
At the current price near $60, Fortis isn’t as cheap as it was in October when the share price slipped below $50, but it is still shy of the $65 high it reached in May last year.
The steady climb off the 2022 low is likely due to a combination of bargain hunting and a realization in the market that interest rate hikes are nearing their end. At the same time, investors who are concerned about risks in the financial sector and the threat of a possible recession are seeking out dividend stocks with revenue streams that should hold up well during an economic downturn.
Fortis owns utility businesses in Canada, the United States, and the Caribbean. The assets include power-generation facilities, electricity transmission networks, and natural gas distribution utilities. A full 99% of the revenue comes from regulated businesses. This means cash flow tends to be predictable.
Fortis grows through acquisitions and internal projects. The current $22.3 billion capital program is expected to boost the rate base enough to support annual dividend growth of at least 4% through 2027.
Fortis has raised the dividend in each of the past 49 years. At the current share price, the stock offers a 3.75% yield.
Bank of Nova Scotia
Bank of Nova Scotia has a new chief executive officer (CEO) this year, and changes are already underway. The bank just announced a new head for the international operations. The move could be a signal that Bank of Nova Scotia is planning a strategy shift in its foreign investments.
Investors want to see some action after years of underperformance by BNS compared to its Canadian bank peers. One area of focus is the Latin American business that includes assets in the Pacific Alliance trade bloc countries of Mexico, Peru, Chile, and Colombia. Bank of Nova Scotia has built up a large presence in the four markets through a series of acquisitions over the past three decades. In normal times, these segments deliver decent margins, and there is definitely long-term growth potential, but political uncertainty and economic volatility during global downturns have investors wondering if the risks are too high.
It will be interesting to see if Bank of Nova Scotia exits some of these markets once it completes its strategic review. In his address to shareholders, the new CEO highlighted opportunities for Mexico, so that part of the business will likely stay. In Canada, the bank says it wants to boost its presence in Quebec and British Columbia where is sees growth opportunities.
BNS stock trades near $68 per share at the time of writing compared to $85 at this time last year. At 9.5 times trailing earnings, the share price looks cheap, and investors can get a 6% dividend yield.
Is one a better buy for passive income?
Fortis offers good dividend-growth guidance and should be a solid stock to own through a recession. The tradeoff is the lower yield due to the rebound in the share price over the past six months.
Bank of Nova Scotia provides a better yield, and investors should see dividend growth continue. The risk, however, is that bank stocks could retest their 12-month lows if the economy goes into a meaningful recession in the back half of 2023 or the first part of next year, so investors should be willing to ride out some ongoing turbulence. That being said, Bank of Nova Scotia offers an attractive yield today that pays you well to wait for the recovery.
If you can handle the anticipated volatility, I would probably make Bank of Nova Scotia the first choice right now for a portfolio focused on passive income and look to add to the position on any additional downside.
