Investors who missed the fourth-quarter (Q4) 2023 rally in the market are wondering which top TSX dividend stocks are still undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) portfolio focused on passive income.
Enbridge
Enbridge (TSX:ENB) is a giant on the TSX with a current market capitalization of more than $100 billion. The company’s pipeline assets move 30% of the oil produced in Canada and the United States and 20% of the natural gas used by American households and businesses.
Getting large new energy pipeline projects approved and built is very difficult these days. This should make the existing infrastructure more valuable in the future as oil and natural gas demand are expected to remain robust, despite the global transition to renewable energy.
Enbridge’s growth investments in the past two years have focused on new segments. The company bought an oil export terminal in Texas and purchased a stake in a liquified natural gas (LNG) export facility being built in British Columbia. Enbridge is also expanding its renewable energy division. Finally, Enbridge recently announced a US$14 billion deal to buy three natural gas utilities in the United States.
ENB stock trades near $48 per share at the time of writing. That’s up from $43 in early October but still down from the $59 the stock reached last year.
Interest rate hikes are the main reason for the decline in the stock, but rates are expected to decline at some point in 2024. When that begins to happen, there should be renewed interest in dividend stocks like Enbridge that have large capital programs. In the meantime, investors who buy at the current level can get a 7.6% dividend yield.
Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS) trades for close to $64 at the time of writing compared to $93 in early 2022. The stock is up 11% in the past month, and more gains should be on the way next year.
High interest rates are driving up loan defaults and forcing Bank of Nova Scotia and its peers to set aside more money for potential loan losses. The overall loan book, however, still looks solid, and economists are broadly anticipating a soft landing for the Canadian economy as the Bank of Canada’s rate hikes reduce inflation. Expectations for rate cuts next year are driving the rally in the bank sector. As long as the soft landing scenario materializes, BNS stock should trend higher.
The new chief executive officer is cutting staff to reduce costs. The bank will focus most of its future investment on growing the business in Canada, the United States, and Mexico. The other international businesses, primarily located in Peru, Chile, and Colombia, that have been the growth focus for the past decade will now be of lower importance or could even be sold with the funds shifted to new opportunities.
Bank of Nova Scotia’s dividend offers a 6.6% yield at the current price.
The bottom line on top stocks for passive income
Enbridge and Bank of Nova Scotia pay attractive dividends that should continue to grow. Ongoing volatility should be expected, but these stocks still look cheap and deserve to be on your radar heading into 2024.
