The decline in the share prices of some of Canada’s top dividend stocks over the past year is giving pensioners a chance to buy great stocks at cheap prices. Buying on dips takes courage, as it goes against the market’s momentum, but the strategy also boosts the yield on the investment and can lead to attractive capital gains when the stock rebounds.
Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS) trades below $66.50 at the time of writing compared to more than $80 at this time last year.
The decline is part of a broader pullback in the bank sector that has occurred, as investors become more concerned that interest rates will have to remain high for longer than expected. This could potentially tip the economy into a deep slump and force businesses to cut staff. A big jump in unemployment would likely drive up loan defaults and hit bank profits.
Bank of Nova Scotia raised its provisions for credit losses (PCL) by nearly $500 million in the fiscal second quarter (Q2) of 2023 compared to the same period last year. This suggests the bank is already seeing the impact of rate hikes on its commercial and residential clients, and investors should brace for higher loss provisions in the coming quarters.
That being said, the bank remains very profitable. Bank of Nova Scotia generated $2.16 billion in the quarter compared to $2.75 billion in fiscal Q2 2022. The dip is largely due to the increased PCL. These are not concrete losses, and PCL can be reversed if customers don’t actually default.
Bank of Nova Scotia’s common equity tier-one (CET1) ratio was 12.3% as of April 30. This is comfortably above the 11% required by regulators, so the bank is sitting on excess capital that should ensure it has the flexibility to ride out some economic turbulence.
Management raised the quarterly dividend from $1.03 to $1.06 when the bank announced the Q2 2023 results. That suggests the board is positive on the revenue and earnings outlook over the medium term, despite the economic headwinds.
Investors who buy BNS stock at the current share price can pick up a solid 6.4% dividend yield.
TC Energy
TC Energy (TSX:TRP) is a major player in the North American energy infrastructure sector with 93,000 km of natural gas pipelines and more than 650 billion cubic feet of natural gas storage located in Canada, the United States, and Mexico.
The company generated good Q1 2023 results. Comparable earnings before interest, taxes, depreciation, and amortization (EBITDA) came in at $2.8 billion, an increase of 16% over the same period last year. Comparable earnings per share (EPS) rose 8% to $1.21.
TC Energy confirmed its 2023 guidance for EBITDA growth of at least 5% and a slight increase in comparable EPS. The overall capital program stands at $34 billion with 2023 spending to be in the range of $11.5 to $12 billion.
Management intends to boost the dividend by at least 3% annually over the medium term.
Despite the positive results and steady guidance, the stock remains well below the 2022 highs. Investors can buy TRP stock for close to $54.50 at the time of writing compared to $74 in June last year.
The current quarterly distribution of $0.93 per share provides an annualized yield of 6.8%.
The bottom line on top stocks to buy 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 to work in a portfolio focused on passive income, these stocks deserve to be on your radar.
