The market correction that hit several TSX sectors over the past year is giving investors who missed the bounce off the 2020 market crash another chance to buy top Canadian dividend stocks at discounted prices for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio.
TC Energy
TC Energy (TSX:TRP) is a leading energy infrastructure firm primarily focused on natural gas transmission with 93,000 km of pipelines and 650 billion cubic feet of storage capacity located in Canada, the United States, and the Caribbean.
The company also has power generation facilities and oil pipelines, although TC Energy intends to spin off the oil pipelines business to shore up its balance sheet and focus on growth in the other segments.
TRP stock trades near $49 per share at the time of writing compared to more than $70 at the highs of 2022.
The meltdown has largely occurred as a result of rising interest rates. As borrowing costs increase, it makes funding capital projects more expensive, and the higher payments on variable-rate loans eat into profits and reduce cash available for distributions. TC Energy’s developments often cost billions of dollars and take years to complete.
Internally, TC Energy has also struggled with soaring construction costs on the Coastal GasLink pipeline. The project is more than 90% complete but will run a total tab of at least $14.5 billion, which is more than double the original projection.
Management is making good progress on monetizing some assets to obtain capital. Despite the headwinds, the ongoing $34 billion capital program is expected to generate enough cash flow to support planned dividend increases of 3% to 5% per year.
At the current share price, investors can get a 7.6% dividend yield from TRP stock.
Bank of Nova Scotia
Soaring interest rates are also largely responsible for the pullback in the share prices of banks stocks, including Bank of Nova Scotia (TSX:BNS). Rising interest rates are normally positive for the banks as the higher rates enable them to generate better net interest margins. Steep increases in rates over a short period of time, however, have negative impacts.
Borrowers with too much debt, especially those with variable-rate loans, are getting pinched. The higher rates go and the longer they stay elevated, the more likely there will be a wave of defaults by commercial and retail borrowers. If the economy goes into a deep recession, job losses could mount and that would potentially spell trouble for banks, as people are unable to make payments on mortgages, credit card balances, car loans, and other debt.
For the moment, economists broadly expect a short and mild recession to occur, as the Bank of Canada and the U.S. Federal Reserve keep rates elevated to reduce inflation. As long as that turns out to be the case, BNS stock looks cheap today.
The bank remains very profitable and has built up its capital reserves to enable it to ride out some tough times. The board increased the dividend earlier this year, so management doesn’t appear to be too concerned about the profit outlook. At the current share price, investors can get a 6.6% dividend yield.
Bank of Nova Scotia trades near $64 at the time of writing. The stock was above $93 in early 2022, so there is decent upside potential on a rebound.
The bottom line on top high-yield stocks
Ongoing volatility should be expected, but TC Energy and Bank of Nova Scotia are good examples of top TSX stocks paying attractive dividends that should continue to grow. If you have some cash to put to work, these stocks already look cheap and deserve to be on your radar.
