Canadian dividend stocks took a beating through most of 2023, punished by rising interest rates. Bargain hunters, however, started buying discounted high-yield stocks through the fourth quarter (Q4), and many great TSX dividend-growth stocks still look undervalued to start the new year.
BCE (TSX:BCE) is Canada’s largest communications firm, with a current market capitalization of nearly $49 billion. The stock trades for close to $53.50 at the time of writing. That’s up from the 12-month low of around $49.50 but still down considerably from the $65 the stock fetched in May last year.
Investors dumped the stock in step with hikes in interest rates through the second half of 2023, as the Bank of Canada ramped up its efforts to slow the economy to get inflation under control. High interest rates drove down bond prices and pushed up bond yields. This led to a jump in rates offered on Guaranteed Investment Certificates (GICs) that started to compete with BCE and other blue-chip dividend stocks for investor funds.
BCE is also expected to report a dip in adjusted earnings per share for 2023 compared to 2022, largely as a result of higher borrowing costs.
Rates have likely already peaked and bond yields fell off a cliff in the past few months. GIC rates are down as a result and could continue to slide in the coming months if the market feels more confident that rate cuts are on the way in the back half of 2024. This should be positive for BCE stock.
BCE raised the dividend by at least 5% annually for the past 15 years. Investors who buy the stock at the current level can get a 7.25% dividend yield.
Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS) is working through a strategic overhaul that will see the bank focus most of its investments on growing the Canadian, U.S., and Mexican operations in the next few years. The other international operations located in Chile, Colombia, and Peru will be less important and could even be sold if they do not perform well.
It will take time for the new chief executive officer to turn things around, but investors might want to take a contrarian position in BNS stock while it is still out of favour. The shares are actually up about 15% from the 2023 low, but more gains could be on the way in 2024. BNS stock trades near $63.50 at the time of writing. It was $93 at the peak in early 2022.
Economists are getting more comfortable predicting a soft landing for the Canadian and American economies as inflation eases back down to the 2% target. Interest rate cuts will reduce pressure on businesses and households that are carrying too much debt. This should lead to lower provisions for credit losses at the banks.
BNS stock still appears priced for dire economic conditions. For the moment, that’s not the direction the economy is expected to go in the coming months. Ongoing volatility should be expected, but investors who buy Bank of Nova Scotia at the current price can get a solid 6.7% yield while they wait for the recovery.
Suncor (TSX:SU) is another contrarian pick for 2024. The oil sands giant’s share price trades near $43 at the time of writing. This is pretty much where it was in early 2020 before the pandemic crash. Suncor’s peers, however, have, in some cases, enjoyed stock gains of 100% from their pre-pandemic levels, supported by the recovery in oil prices.
Suncor has a new chief executive officer who is cutting costs and exiting non-core businesses to focus on the core production, refining, and retail operations. The integrated structure of the operations used to be the reason Suncor was a darling in the oil patch.
Oil prices could be volatile again this year, so investors should prepare for some additional turbulence. That being said, there is attractive upside potential if oil rallies and investors get paid a solid 5% yield right now while they wait for the next bounce.
The bottom line on top TSX dividend stocks
BCE, Bank of Nova Scotia, and Suncor all pay attractive dividends that should continue to grow. If you have some cash to put to work, these stocks still look cheap and deserve to be on your radar.