The latest leg of the market correction in top Canadian dividend stocks is giving self-directed Tax-Free Savings Account (TFSA) and Registered Retirement Savings Plan (RRSP) investors who missed the rally off the 2020 market crash a new opportunity to pick up attractive yields and book a shot at decent capital gains on the next rebound.
Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS) has underperformed its peers in recent years, so this is a bit of a contrarian pick in the banking sector.
The board brought in a new chief executive officer in 2023 to make changes that will hopefully deliver better returns. Several senior roles already changed hands, and investors should get information about any major strategic shifts when the company hosts its investor day on December 13.
In the meantime, investors can buy BNS stock at a discounted price. Bank of Nova Scotia trades near $58.50 at the time of writing. This is close to the 12-month low and down considerably from the 2022 high of around $93.
Most of the pain is due to market concerns that rising interest rates are going to trigger a severe recession and drive up unemployment. The Bank of Canada and the United States Federal Reserve are trying to get inflation back down to the 2% target. If rates go too high and stay elevated for too long, the anticipated soft landing for the economy becomes less likely. Businesses and households are burning through savings to cover higher borrowing costs. If economic activity declines considerably, there would likely be a spike in loan defaults.
Bank of Nova Scotia increased its provision for credit losses (PCL) by about $400 million in the fiscal third quarter (Q3) 2023 compared to roughly double the amount set aside in the same period last year. The overall loan book, however, remains in solid shape, and Bank of Nova Scotia continues to generate strong profits, even in the current environment.
The bank raised the dividend earlier this year. At the current share price, investors can get a 7.25% dividend yield.
Enbridge
Enbridge (TSX:ENB) is shifting its investment focus away from oil pipelines and more towards natural gas utilities and renewable energy. Management also sees growth opportunities in exports.
Enbridge recently announced a deal to buy three American natural gas utilities for US$14 billion. This will make Enbridge the largest natural gas utility operator in North America, with natural gas utility businesses in Canada and the United States serving roughly seven million customers.
In the past two years, Enbridge acquired an oil export terminal in Texas, a stake in the new Woodfibre liquified natural gas (LNG) export facility being built in British Columbia, and a large American solar and wind project developer.
The new assets, along with an expanding capital program, should drive revenue and cash flow growth to support ongoing dividend increases. Enbridge raised the dividend in each of the past 28 years. ENB stock is down from $59 last year to about $43 at the time of writing. Investors who buy Enbridge at the current level can get a dividend yield of 8.25%.
The bottom line on cheap TSX dividend stocks
Ongoing volatility should be expected until the market has a clear sign that interest rates won’t go higher. That being said, Bank of Nova Scotia and Enbridge already appear oversold and offer attractive dividends that should continue to grow. If you have some cash to put to work in a TFSA or RRSP, these stocks deserve to be on your radar.
