Canadian retirees are searching for the best TSX dividend stocks to buy for portfolios focused on passive income. The recent bounce off the market pullback wiped out some good deals, but investors can still find great dividend stocks trading at cheap prices.
Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS) has underperformed its peers in recent years. In fact, the stock is down about 10% since the spring of 2018. Investors seeking total returns probably have better near-term options today, but contrarians seeking solid passive income and a high yield from a major Canadian bank can now pick up Bank of Nova Scotia at a cheap 9.6 times training 12-month earnings and get a 6% dividend yield.
Bank stocks are out of favour after a wave of failures last month in the United States and Europe scared investors away from the sector. The impact of soaring interest rates is starting to show cracks in the financial system, and there will likely be more scary events as the full brunt of higher rates hits overleveraged homeowners and businesses.
That being said, Bank of Nova Scotia and the other large Canadian banks have strong capital positions and get revenue from diversified business segments and geographies, so they should be in a good position to ride out the next storm.
This doesn’t mean they won’t be hit by a meltdown in Canadian house prices or a global recession, but they are unlikely to fail, and the dividends should be safe.
Economists widely expect the Canadian economy to go through a mild recession. If that turns out to be the case, and the jobs market remains strong, Bank of Nova Scotia is probably oversold today.
A new chief executive officer took over earlier this year. When that happens at a large Canadian bank the new boss often makes sweeping changes to boost investor returns. Investors might want to start nibbling.
BCE (TSX:BCE) traded for nearly $74 a year ago. Today, investors can buy the communications giant for close to $64 and get a 6% dividend yield.
BCE generated solid results in 2022 and bumped up the dividend by more than 5% for this year. The board raised the payout by at least 5% annually for the past 15 years, and investors should see the trend continue.
BCE is investing heavily to build out its 5G mobile network and is expanding its fibre-to-the-premises project. These initiatives will open up new revenue opportunities for the company while helping protect BCE’s wide competitive moat.
Management expects revenue and free cash flow to grow in 2023, despite the economic headwinds. Profits will likely take a hit due to the steep rise in borrowing expenses. A slide in revenue in the media group is also possible if a recession hits. However, the overall business should perform well. BCE’s mobile and internet subscription revenue tends to be recession resistant.
The bottom line on top stocks for passive income
Volatility should be expected in the coming months, but Bank of Nova Scotia and BCE already appear cheap and pay attractive dividends that should continue to grow. If you have some cash to put to work in a portfolio targeting passive income, these stocks deserve to be on your radar.