The pullback in the share prices of many top Canadian dividend stocks in 2023 is giving retirees and other investors seeking passive income a chance to get high yields from top TSX dividend payers before a potential market rebound next year.
BCE
BCE (TSX:BCE) is Canada’s largest communications company with a current market capitalization near $48 billion. The shares trade near $53 at the time of writing compared to $65 in May and above $73 at the peak last year.
The drop has mostly occurred as a result of rising interest rates. The Bank of Canada is trying to get inflation back down to its target of 2%. In October 2023 it was 3.1%, so progress is being made and the latest GDP report suggests the economy is slowing down as intended. This means rate hikes might be at an end and economists are starting to predict rate cuts in 2024 to avoid driving the economy into a recession.
BCE uses debt to fund part of its large capital program. Higher borrowing costs put a dent in profits. In fact, BCE expects earnings per share to dip in 2023. However, as rates begin to fall the negative impact should reverse and BCE continues to generate solid operating results, despite challenging economic conditions for its media business.
BCE expects to deliver on its 2023 guidance. Revenue and free cash flow for 2023 should be higher than last year, supported by the strength of the core mobile and internet businesses. Investors who buy BCE stock at the current level can get a 7.3% dividend yield. The board has increased the payout by at least 5% for 15 consecutive years.
Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS) trades near $60 per share at the time of writing compared to $93 at one point in early 2022. The drop has driven the dividend yield to 7%, which is high for a large Canadian bank.
Bank of Nova Scotia is expected to unveil a significant strategy shift in the coming weeks. This could involve monetizing some international assets. Bank of Nova Scotia has a large presence in Latin America with businesses in Mexico, Peru, Chile, and Colombia. These markets offer attractive long-term growth potential as the middle class expands, but they are also viewed by investors as being high risk due to political volatility and the reliance on commodity markets for big chunks of revenue.
Mexico will likely remain strategically important for the bank, but pundits speculate the other Latin America operations could get sold with the funds directed to other opportunities. The investor meeting on December 13 is expected to reveal the results of the strategic review conducted this year.
Bank of Nova Scotia remains very profitable, even as its provision for credit losses (PCL) is expected to rise in the coming quarters due to the impact of interest rate increases on borrowers. The bank has a solid capital position to ride out tough times, and the dividend should be safe.
BNS stock is arguably a contrarian pick today, but the long-term potential returns are attractive, and you get paid well to wait for the recovery.
The bottom line on top stocks for passive income
BCE and Bank of Nova Scotia pay good dividends that should continue to grow. If you have some cash to put to work in a portfolio focused on passive income, these stocks look cheap today and deserve to be on your radar for 2024.
