Retirees and other investors seeking high-yield passive income can take advantage of the market correction to buy top TSX dividend stocks at cheap prices for a self-directed Tax-Free Savings Account (TFSA) portfolio.
BCE
BCE (TSX:BCE) has been a popular pick among retirees for decades, and for good reason. The communications giant pays a reliable and generous dividend that tends to grow at a steady pace. In fact, BCE increased the distribution by at least 5% in each of the past 15 years.
BCE gets the largest chunk of its revenue from mobile and internet subscriptions. These are essential services for households and businesses, so the cash flow should hold up well during a recession, but BCE isn’t immune to an economic downturn.
The media division is facing a slowdown in ad revenue as clients reduce marketing budgets to preserve cash flow. Households being hit by higher mortgage rates and rising living costs might delay the purchase of a new mobile device. The steep rise in interest rates over the past year will also pressure BCE’s earnings as higher borrowing costs cut into profits.
The macroeconomic headwinds are largely responsible for the slide in BCE’s share price over the past year. BCE trades near $58.50 at the time of writing. The stock was above $70 in the spring of 2022.
Additional near-term volatility should be expected, but BCE is starting to look oversold.
Management expects to deliver revenue growth and free cash flow growth in 2023 compared to last year. This should support another decent dividend increase for 2024.
Investors who buy the latest dip can now get a 6.6% dividend yield from BCE stock.
Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS) trades for close to $65 per share at the time of writing compared to more than $90 in early 2022. The decline over the past 18 months is largely due to broader weakness in the bank sector.
Investors have become increasingly concerned that rate hikes implemented by the Bank of Canada and the U.S. Federal Reserve to get inflation under control will eventually trigger a deep economic downturn. The central banks are hoping to cool off the hot economy and bring balance to the tight labour market without causing too much economic pain.
The risk, however, is that sticky inflation will force central banks to push rates higher than expected and hold them elevated for a longer period of time. So far, households and businesses have been able to tap savings to cover the jump in debt costs, but those reserves are going to eventually run out.
In the worst-case scenario, the banks will see a wave of defaults on commercial and residential loans as the economy slows and unemployment increases.
Bank of Nova Scotia and its peers are already increasing provisions for credit losses, but the quality of the overall loan book remains solid. Bank of Nova Scotia finished the fiscal second quarter of 2023 with surplus capital that will provide an extra safety net. Profitability remains strong, and the board announced another dividend increase, despite the challenging environment.
BNS stock is probably undervalued right now, especially if a recession proves to be mild and short. Investors who buy at the current level can get a 6.5% dividend yield.
The bottom line on top stocks for dividend income
BCE and Bank of Nova Scotia pay attractive dividends that should continue to grow. If you have some cash to put to work in a TFSA, these stocks deserve to be on your radar.
