The latest plunge in the stock market is giving Canadian retirees a chance to buy top TSX dividend stocks at undervalued prices. Additional downside is certainly possible, but these stocks now offer high yields along with good prospects for dividend growth and capital gains.
Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS) has a new chief executive officer (CEO) that is determined to turn around the performance of the bank’s share price in the coming years. A strategic review of the bank’s domestic and international operations is underway, and investors could get news of sweeping changes later in 2023.
In an address to shareholders in early April, the new CEO indicated the bank will focus on boosting its presence in Quebec and British Columbia, where the bank sees good growth opportunities. In the international business, the CEO said the operations in Mexico have good growth potential. Bank of Nova Scotia also has significant operations in Chile, Peru, and Colombia. Investors are waiting to find out if the bank will remain in these markets.
Bank of Nova Scotia trades below $66 per share at the time of writing compared to $85 at this time last year. The pullback is largely due to the broader decline in the bank sector. Investors are concerned that rising interest rates and persistent inflation will drive a wave of commercial and retail loan defaults. The recent flurry of bank failures in the United States has put added pressure on bank stocks.
Bank of Nova Scotia and its Canadian peers raised provisions for credit losses when they reported fiscal second-quarter (Q2) 2023 results, so there is evidence that more customers are struggling to make their loan payments. This trend is expected to continue, but Bank of Nova Scotia has a strong capital position with its common equity tier-one (CET1) capital ratio of 12.3%.
The bank remains very profitable, reporting adjusted net income of $2.17 billion in the latest quarter. Investors are getting another dividend increase of about 3%, so the management team appears to be comfortable with the profit outlook.
TFSA investors who buy BNS stock at the current level can get an annualized dividend yield of 6.45%.
TC Energy
TC Energy (TSX:TRP) is a major player in the North American energy infrastructure sector with a core focus on moving and storing natural gas. The 93,000 km natural gas pipeline network and more than 650 billion cubic feet of natural gas storage positions TC Energy to benefit from growing domestic and international demand for the fuel.
Liquified natural gas (LNG) exports are growing as countries around the globe look to secure reliable sources of the fuel. The war in Ukraine has led to increased interest in Canadian and American natural gas supplies. LNG facilities under construction in British Columbia will eventually connect domestic producers to foreign buyers. TC Energy is building its Coastal GasLink pipeline to carry natural gas from producers to a new facility on the B.C. coast.
Investors are frustrated that the cost of the project has ballooned to at least $14.5 billion. This is more than double the original estimate. However, Coastal GasLink is nearly 90% complete, so most of the bad news should be out by now.
Looking ahead, TC Energy still expects its $34 billion capital program to drive revenue and cash flow growth to support annual dividend increases of at least 3%. Investors who buy TRP stock at the current price near $52.50 can get a 7% dividend yield.
The bottom line on top stocks for passive income
Bank of Nova Scotia and TC Energy pay attractive dividends that should continue to grow. If you have some cash to put in a TFSA targeting passive income, these stocks deserve to be on your radar.
