Pensioners are searching for the best TSX dividend stocks to buy for their self-directed Tax-Free Savings Account (TFSA) portfolios. The market correction over the past year is giving retirees and other investors targeting passive income another chance to buy great Canadian dividend stocks at discounted prices.
Why buy dividend stocks now?
Owning shares comes with risk, as stock prices can fall below the purchase price.
However, buying good dividend-growth stocks on dips tends to be a savvy move over the long haul. You get the benefit of a higher initial dividend yield and can watch the return on the investment grow as the dividend rises and, ideally, the stock rebounds.
What about GICs?
Canadian income investors can now get returns of better than 5% on Guaranteed Investment Certificates (GICs), so these should be part of the portfolio mix to reduce overall principal risk. The downside is that the rate is set for the term of the GIC. Good dividend stocks raise their distributions every year. If you want a higher average return, some of Canada’s best dividend payers now offer yields that are comfortably above GIC rates.
Enbridge
Enbridge (TSX:ENB) is a giant in the North American energy infrastructure industry. The company’s oil pipelines move 30% of the oil produced in Canada and the United States. Enbridge also has an oil export terminal in Texas.
On the gas side, Enbridge’s natural gas utilities distribute fuel to millions of Canadian homes and businesses. The natural gas transmission network moves 20% of the gas used in the United States. In addition, Enbridge is a partner in the Woodfibre liquified natural gas (LNG) project being built on the coast of British Columbia.
Enbridge trades near $48 per share at the time of writing compared to above $59 at the 2022 high.
The drop is starting to appear overdone. Enbridge expects to deliver steady earnings per share (EPS) growth and distributable cash flow (DCF) growth over the next few years, supported by the $17 billion capital program.
The board increased the dividend in each of the past 28 years. Investors can now get a 7.3% dividend yield from ENB stock.
Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS) has a new chief executive officer who is determined to deliver better returns for shareholders in the coming years. As part of that initiative, the company is undergoing a strategic review of its domestic and international operations.
Bank of Nova Scotia is looking to expand in Quebec, so it wouldn’t be a surprise to see the bank emerge as a serious bidder for Laurentian Bank (TSX:LB), which recently announced it has hired advisors to evaluate takeover offers.
Bank of Nova Scotia might also decide to exit some of its Latin American markets. The bank has a large presence in Mexico, Chile, Colombia, and Peru. Mexico will likely remain strategically important, but the other operations could be sold and the funds invested in other opportunities.
Bank of Nova Scotia increased the dividend when it reported fiscal second-quarter 2023 results. This suggests the management team is comfortable with the revenue and earnings outlook. The bank has a solid capital cushion to ride out tough times, so there shouldn’t be any risk to the payout, even if a severe recession emerges in the next 12-18 months.
BNS stock trades below $66 compared to more than $90 in early 2022. The current dividend yield is about 6.5%.
The bottom line on top TSX dividend stocks for retirement income
Enbridge and Bank of Nova Scotia are good examples of stocks that pay growing dividends and offer high yields. If you have some cash to put to work in a self-directed TFSA focused on passive income, these stocks deserve to be on your radar.
