The pullback in the share prices of several top TSX dividend stocks is giving investors who missed the bounce after the 2020 market crash another chance to buy great dividend-growth stocks with high yields for a self-directed Tax-Free Savings Account (TFSA) focused on passive income.
Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS) is arguably a contrarian pick among the big Canadian banks. The stock has underperformed its peers in recent years and currently trades close to $60 per share compared to $93 in early 2022.
The board put a new chief executive officer in charge at the beginning of 2023. He has already made significant changes in senior leadership roles, and Bank of Nova Scotia is expected to announce strategic shifts at the upcoming investor presentation on December 13.
Bank of Nova Scotia continues to generate good profits in the current environment, even as the bank’s provision for credit losses (PCL) has increased due to the surge in interest rates. Borrowers with too much debt are feeling the pinch, and defaults are expected to rise while interest rates remain elevated as the economy cools down.
Bank of Nova Scotia finished the fiscal third quarter (Q3) of 2023 with a strong capital position, so the bank has the cushion needed to ride out some market turbulence if the economy goes into a recession. The board increased the dividend earlier this year. This should be a signal that management is not too concerned about profit outlook.
Investors who buy BNS stock at the current level can get a 7% dividend yield.
BCE
BCE (TSX:BCE) trades for close to $51.50 at the time of writing compared to $65 in May. The drop appears overdone when you consider BCE’s strong competitive position in the Canadian communications market and the quality of the revenue stream generated by the mobile and internet subscription services.
High interest rates are pushing up borrowing costs. This makes debt more expensive for businesses like BCE that spend billions of dollars each year on capital projects and borrow some of the funds used to pay for the initiatives. BCE expects the jump in debt expenses to contribute to a decline in adjusted earnings per share this year. However, overall operating revenue and free cash flow are projected to increase.
BCE raised the dividend by at least 5% in each of the past 15 years. Investors who buy the stock at the current level can get a 7.5% dividend yield.
TC Energy
TC Energy (TSX:TRP) trades for less than $47 at the time of writing compared to $74 at the high point in 2022. The steep decline is largely due to soaring interest rates. As with BCE, TC Energy uses debt to finance part of its capital program.
The stock has also been under pressure due to expense pressures on a major project. The Coastal GasLink pipeline is expected to cost at least $14.5 billion compared to the original budget of around $6.3 billion. Fortunately, the latest update says the pipeline is now 98% complete.
TC Energy’s $34 billion capital program is expected to drive adequate revenue and cash flow growth to support annual dividend increases of at least 3% over the medium term. Investors who buy the stock at the current level can already secure a 7.9% dividend yield and wait for future increases to boost the return.
The bottom line on top TSX dividend stocks
Bank of Nova Scotia, BCE, and TC Energy pay attractive dividends that should continue to grow. If you have some cash to put to work in a portfolio targeting passive income, these stocks look cheap today and deserve to be on your radar.
