Canadian pensioners are searching for reliable dividend stocks to buy for their self-directed Tax-Free Savings Account (TFSA) portfolios focused on passive income. The pullback in the share prices of some of the top TSX dividend payers is giving retirees a chance to get great yields from high-quality companies.
BCE
BCE (TSX:BCE) trades near $53 per share at the time of writing. That’s off the 12-month low near $50 the stock hit last fall but is still way below the $65 BCE fetched in May last year and the $74 the stock reached at the peak in 2022.
High interest rates are driving up borrowing costs for BCE. This is putting a dent in profits. In fact, investors will likely see BCE report a drop in adjusted earnings per share in 2023 compared to the previous year. Price wars on mobile plans in the fourth quarter (Q4) of 2023 might put additional pressure on results.
That being said, the drop in the share price is probably overdone. BCE should be a good stock to own during a recession due to the essential nature of its core mobile and internet subscription services. The company has a wide competitive moat and enjoys the balance sheet strength to make the required investments to protect its market position.
Investors who buy BCE at the current level can get a 7.3% dividend yield, so you get paid well to wait for interest rates to fall and ease pressure on borrowing costs.
Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS) traded as high as $93 per share nearly two years ago at the top of the steep recovery that followed the 2020 crash. Since then, the stock has drifted lower amid aggressive interest rate hikes by the Bank of Canada and the U.S. Federal Reserve.
Banks are increasing their provisions for credit losses (PCL) as commercial and residential borrowers with too much debt struggle to cover the jump in their payments. This is expected to continue in 2024, but the PCL amounts remain very small relative to the overall loan book. As long as there isn’t a deep recession and a surge in unemployment, the banks should ride out the turbulence in good shape.
Bank of Nova Scotia expects fiscal 2024 earnings to be slightly better than 2023. The bank has a solid capital cushion and recently raised the dividend. Cuts to staff numbers last year should reduce 2024 expenses, and the bank is planning to focus growth initiatives on Canada, the United States, and Mexico in the next few years.
Investors who buy BNS stock at the current level can get a 7.3% dividend yield.
The bottom line on top TSX dividend stocks
BCE and Bank of Nova Scotia pay attractive dividends that should continue to grow. If you have some cash to put to work, these stocks look cheap right now and deserve to be on your radar for a TFSA targeting high-yield passive income.
