Canadian pensioners are looking for top dividend-growth stocks with high yields to add to their self-directed Tax-Free Savings Account (TFSA) portfolios. The market correction is giving retirees a chance to buy great TSX dividend stocks at discounted prices.
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Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS) raised its quarterly dividend from $1.03 to $1.06 per share when it announced the fiscal second-quarter (Q2) 2023 earnings results. The board’s decision to hike the dividend should be a signal to investors that the management team has confidence in the bank’s ability to generate solid revenue and profits, even as economic headwinds build.
Bank stocks fell out of favour over the past year. Soaring interest rates are putting pressure on borrowers holding too much debt and the result will likely be a jump in loan losses in the coming quarters. Bank of Nova Scotia increased its provision for credit losses (PCL) in the latest quarter, so there is evidence that the rate hikes are already having an impact.
A recession is probably needed to cool off the hot jobs market and get inflation under control. This will put more pressure on households who are already struggling to cover higher mortgage costs and the steep hike in living costs. If the economy goes into a deep downturn and job losses surge, the banks could be in for a rough ride.
That being said, most economists expect a soft landing for the economy with a mild and relatively short recession. In this scenario, the drop in the share price of Bank of Nova Scotia looks overdone.
BNS stock trades near $65 at the time of writing compared to $81 last August. Investors who buy the dip can get a 6.5% yield today.
Pembina Pipeline
Pembina Pipeline (TSX:PPL) raised its dividend by 2.3% when the company reported the Q1 2023 financial results.
At first glance, the Q1 numbers didn’t look good. Revenue slipped from $3.04 billion in Q1 2022 to $2.3 billion. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) fell to $947 million from $1.01 billion. However, the weaker results are due to an outage on the Northern Pipeline system, rather than weak demand for Pembina Pipeline’s services.
Looking ahead, Pembina Pipeline said it expects to hit its 2023 adjusted EBITDA guidance of $3.5 billion to $3.8 billion. Cash flow from operating activities is still expected to be higher than what is needed to cover dividends and capital expenditures. Management intends to use excess cash to reduce debt and buy back stock.
Pembina Pipeline trades near $41 per share at the time of writing compared to more than $50 at the peak in 2022. The pullback appears exaggerated, and investors who buy the stock at the current level can get a 6.5% dividend yield.
Pembina Pipeline has a good track record of making strategic acquisitions to drive growth. It wouldn’t be a surprise, however, to see Pembina Pipeline itself become a takeover target, as the energy infrastructure industry consolidates.
The bottom line on top stocks for passive income
Bank of Nova Scotia and Pembina Pipeline pay attractive dividends that should continue to grow. If you have some cash to put to work in a TFSA targeting passive income, these stocks deserve to be on your radar.
