It takes courage to buy good dividend stocks when they are out of favour, but a contrarian strategy can boost yields on savings and potentially lead to big capital gains once market sentiment changes course.
BCE
BCE (TSX:BCE) is Canada’s largest communications company, with a current market capitalization of nearly $46 billion. The stock trades for close to $51 compared to the 12-month high of around $65 and more than $70 at the peak in 2022.
BCE cut 1,300 positions in 2023 and just announced another round of layoffs that will trim the workforce by another 9% or roughly 4,800 jobs. Management said the moves are necessary to adjust to the revenue challenges faced by the media division that owns radio stations, a television network, and specialty channels. BCE is selling 45 radio stations as part of the overhaul of the media group and is cancelling programs across the various platforms.
The media group’s issues are getting a lot of attention, but investors should focus on the strength of the core mobile and internet businesses. BCE met its guidance on overall revenue and free cash flow growth in 2023 and just raised the dividend by 3% for 2024.
Investors who buy BCE stock at the current level can get a dividend yield of 7.85%.
Enbridge
Enbridge (TSX:ENB) is another great TSX dividend stock that is under pressure. High interest rates make borrowing more expensive for businesses like Enbridge that use debt to fund part of their growth program. Enbridge is working on a $25 billion capital project backlog and continues to make acquisitions. In fact, management hopes to close the US$14 billion purchase of three American natural gas utilities in 2024.
Higher debt expenses cut into profits, but Enbridge is still growing. Management expects the business to generate distributable cash flow (DCF) growth of about 3% in 2024. The board just raised the dividend for the 29th consecutive year. Investors who buy Enbridge at the current level can get a 7.9% dividend yield. The stock trades near $46.50 at the time of writing compared to $59 at one point in 2022. Given the quality of the revenue stream, the drop looks overdone.
Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS) trades for close to $64 right now compared to more than $90 two years ago. The pullback is largely due to investor fears that aggressive interest rate hikes by the Bank of Canada and the U.S. Federal Reserve will ultimately cause a severe recession and drive up loan losses. For the moment, economists broadly expect to see a soft landing for the economy.
Bank of Nova Scotia and its peers increased provisions for credit losses in fiscal 2023, and the trend is expected to continue in 2024, but the amounts remain very small relative to the overall loan book, and Bank of Nova Scotia has a solid capital cushion to ride out challenging times.
The board raised the dividend for 2024, and the new chief executive officer is making sweeping changes in an effort to drive better shareholder returns. Investors who buy the stock at the current level can get a 6.6% dividend yield.
The bottom line on top TSX dividend stocks
Ongoing volatility is expected in the near term, but BCE, Enbridge, 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 today and deserve to be on your radar for a buy-and-hold dividend portfolio.
