2 Top TSX Bargain Stocks That Could Be Ready for a Bull Run

These top TSX dividend stocks still look cheap.

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The TSX rebound that occurred in late 2023 caught many dividend investors by surprise. Those who missed the rally are wondering which Canadian dividend stocks might still be undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) focused on income and total returns.

Enbridge

Enbridge (TSX:ENB) trades for close to $48 at the time of writing compared to $59 at the high point in 2022 before the crash in oil prices and the surge in interest rates sent pipeline stocks into an extended decline.

The company is best known for being an oil pipeline operator in Canada and the United States. This is still a core part of the business. Enbridge moves about 30% of the oil produced in the two countries and also has an oil export terminal in Texas that it acquired for US$3 billion in 2021.

Enbridge’s renewable energy and natural gas divisions, however, are expected to drive a good chunk of the future growth. Management expects to close a US$14 billion acquisition of three natural gas utilities in the United States in 2024. The deals will make Enbridge the largest natural gas utility company in North America. Hydrogen could become an important fuel source in the future, and the distribution would go through the existing natural gas infrastructure. Enbridge’s position in the market with extensive transmission and distribution assets positions the company to benefit from this transition.

On the renewables side, Enbridge bought a solar and wind project developer to boost its renewable energy portfolio, which already has assets in North America and Europe.

Enbridge has a $25 billion capital program on the go to drive revenue and cash flow growth along with the boost that should come from acquisitions. This should support the dividend. Enbridge has increased the payout annually for 29 consecutive years.

The stock could extend its recent recovery if the central banks follow through on anticipated cuts to interest rates this year. In the meantime, investors who buy ENB stock 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 $62.50 at the time of writing compared to $93 roughly two years ago. The decline has largely occurred as a result of rising investor fears that rate hikes by the Bank of Canada will trigger a wave of commercial and personal bankruptcies and force Canadian banks to book big losses. Bank of Nova Scotia and its peers raised provisions for credit losses (PCL) through 2023 to cover potential bad loans, and the trend is expected to continue in 2024 while interest rates remain elevated.

That being said, the overall loan portfolio remains strong, and Bank of Nova Scotia is still a very profitable company. The 3% staff reduction last year will have a positive impact on expenses in fiscal 2024, and Bank of Nova Scotia is working through a strategy shift under the new chief executive officer, who is determined to drive better returns for shareholders after the bank’s underperformance relative to its large peers in recent years.

Investors who buy BNS stock at the current level can get a 6.8% dividend yield.

The bottom line on cheap TSX dividend stocks

Enbridge and Bank of Nova Scotia pay good dividends that should continue to grow. Ongoing volatility should be expected until interest rates begin to fall, but these stocks look undervalued right now and could deliver big gains for patient investors. Until then, you get paid well to wait for the bounce.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

The Motley Fool recommends Bank Of Nova Scotia and Enbridge. The Motley Fool has a disclosure policy. Fool contributor Andrew Walker owns shares of Enbridge.

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