Canadian retirees are searching for top TSX dividend stocks to add to their self-directed Tax-Free Savings Account (TFSA) portfolios. The recent pullback in the stock market is giving investors a chance to buy great dividend stocks at undervalued prices and pick up high yields to generate passive income.
Enbridge
Enbridge (TSX:ENB) trades for less than $50 per share at the time of writing. That’s down from more than $59 in June last year.
The latest leg lower is likely due to concerns that Enbridge’s Line 5 pipeline might get shut down, at least temporarily, due to potential risks caused by erosion near the pipeline in Wisconsin. Line 5 carries fuel that is deemed essential for the economies of Canada and several American states. It is unlikely the pipeline will be shut down, but the risk has investors worried.
Ongoing volatility should be expected until the judge makes a decision, but this could be a great opportunity for dividend investors to pick up Enbridge stock. The current annualized dividend yield is above 7%, and Enbridge will likely extend its 28-year streak of distribution increases.
Enbridge generated solid first-quarter (Q1) 2023 results. Adjusted earnings came in at $0.85 per share compared to $0.84 per share in the same period last year. Distributable cash flow (DCF) rose to $3.2 billion in the quarter compared to $3.1 billion in Q1 2022. Management reaffirmed guidance for the year and Enbridge expects to put $3.5 billion in new capital projects into service in 2023 as part of the current $17 billion capital program. A recent agreement with major clients through 2028 should keep the core Mainline pipeline system at or near capacity.
Given the steady outlook the drop in the share price looks overdone.
Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS) is Canada’s fourth-largest bank with a current market capitalization near $78 billion. The stock is down considerably over the past year, falling from $86 in June to as low as $63. At the time of writing, the stock trades near $65.50 per share.
The Bank of Canada and the U.S. Federal Reserve have increased interest rates dramatically in the past year to try to cool off an overheated economy and bring the employment market back into balance to reduce inflation.
Bank investors are worried that the measures will trigger a sharp increase in loan defaults, as businesses and households become overwhelmed by higher debt payments. Bank of Nova Scotia just reported fiscal Q2 2023 results that showed a large increase in provisions for credit losses compared to the same period last year, so the rate hikes are already hitting over-leveraged clients.
Economic headwinds persist and more downside is certainly possible in the coming months. However, Bank of Nova Scotia has adequate capital to ride out the turbulence and continues to deliver solid profits. The board just raised the quarterly dividend from $1.03 to $1.06, so management can’t be overly concerned about the profitability outlook.
Investors who buy BNS stock at the current price can get a dividend yield of close to 6.5% from the new payout.
The bottom line on top TSX dividend stocks for passive income
Enbridge and Bank of Nova Scotia pay attractive dividends that should continue to grow. If you have some cash to put to work, these stocks look undervalued today and deserve to be on your radar for a portfolio focused on passive income.
