Bank of Nova Scotia (TSX:BNS) and BCE (TSX:BCE) have moved off the recent lows after a market correction hit telecom stocks and bank stocks over the past year. Investors seeking good dividends and a shot at decent capital gains are wondering if these stocks are still undervalued and good to buy today for a self-directed retirement portfolio.
Bank of Nova Scotia
Bank of Nova Scotia is Canada’s number four bank based on its current capitalization near $81 billion. The stock trades close to $68 at the time of writing compared to more than $85 last spring and as high as $93 in early 2022.
The stock is down more than 10% over the past five years and is only up about 17% over the past decade.
A new chief executive officer took the helm in recent months and is planning to get the bank back on track. Investors will have to wait for the completion of a full-scale strategic review to find out exactly what the new boss intends to do to turn things around, but recent executive adjustments might be a hint.
Bank of Nova Scotia just announced a new head for its international banking operations. The division’s businesses are primarily located in the Pacific Alliance trade bloc countries that include Mexico, Peru, Chile, and Colombia. The new leader for the international group has previous experience in the region as well as across other international banking geographies.
Mexico is expected to remain a core part of the strategic focus, but investors will want to see if the bank intends to exit the other three markets. One option might be to use the funds from potential asset sales to boost Bank of Nova Scotia’s presence in Mexico or the United States.
In the meantime, the stock could continue to remain out of favour and that might present a good contrarian opportunity to add BNS stock to the portfolio. The dividend should be safe, and Bank of Nova Scotia currently provides a 6% yield.
BCE
BCE stock was on a roll in the first quarter of 2022, but the party suddenly ended, and the share price went into a six-month decline, falling from close to $74 last April to $56 in October. Rising interest rates and recession fears drove most of the pullback. BCE uses debt to partially fund its large capital program, and high inflation is expected to hit product sales and put a dent in ad spending, as businesses trim marketing budgets.
BCE is known for its wireless and wireline networks that deliver essential mobile and internet services. These revenue streams should hold up well during challenging economic times. The media group, however, is more susceptible to a downturn in the economy.
Despite the economic and interest rate headwinds, the decline in the share price appears overdone. BCE still expects revenue and free cash flow to expand in 2023, so investors should see the 15-year streak of dividend hikes continue in 2024.
BCE’s share price is up nearly 19% over the past five years and has increased more than 35% in the past decade.
At the time of writing, the stock trades near $63 and offers a 6% dividend yield.
Is one a better bet for total returns?
Bank of Nova Scotia and BCE are quality dividend stocks with high yields, so you get paid well to wait for a rebound in the share prices. BCE is probably the safer bet today for conservative investors seeking steady total returns. Contrarian investors who are of the opinion Bank of Nova Scotia is going to turn things around might want to make the bank stock their first pick.
