TFSA Investors: 2 Top TSX Dividend Stocks to Own for 20 Years

These top TSX dividend stocks now offer attractive yields for TFSA investors targeting long-term passive income.

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Stock markets are near all-time highs, but some top TSX dividend stocks are trading at discounted prices and now offer attractive yields. Retirees and other investors who use their self-directed Tax-Free Savings Account (TFSA) to own dividend stocks to generate passive income are wondering which top Canadian dividend stocks now look undervalued and might be good to buy.

BCE

BCE (TSX:BCE) has been a popular pick among retirees for decades due to the reliability and generosity of the dividend payment. The stock has taken a beating over the past two years and now trades near its 10-year low, so this arguably a contrarian pick today.

Higher interest rates are to blame for much of the downward trend over the past two years. BCE uses debt to fund part of its capital program. Rising borrowing costs put a pinch on profits and can reduce cash available for distributions. On the positive side, the pension fund is able to generate much better returns, so there is less risk that BCE would have to top up the pension pot, as it has periodically done in the past.

The Bank of Canada is expected to start cutting interest rates this year to avoid pushing the economy into a recession. Inflation came in below 3% in February, so the central bank is getting close to its 2% target. A drop in interest rates could bring investors back into BCE stock.

That being said, near-term volatility should be expected. BCE announced job cuts of 1,300 positions last summer and another 4,800 this year. Management is cutting costs to adjust to changing conditions in the media business while positioning the overall company to meet financial targets.

BCE still raised the dividend by 3.1% for this year and is targeting total revenue at a similar level to last year. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) should be modestly higher in 2024.

Investors will have to be patient, but the current dividend yield is 8.9%, so you get paid well to wait for a rebound.

Bank of Nova Scotia

Bank of Nova Scotia (TSX:BNS) has also been out of favour with investors. The stock underperformed its large Canadian peers in recent years and now offers the best dividend yield among the five largest Canadian banks.

A new chief executive officer took the helm last year and is making sweeping changes to get the bank back on track. Bank of Nova Scotia cut its staff level by about 3% last year, and new faces are now in several senior roles. The bank conducted a strategic review in 2023. Bank of Nova Scotia will shift its growth focus away from South America to Canada, the United States, and Mexico. It wouldn’t be a surprise to see the operations in Colombia, Peru, and Chile get monetized in the next couple of years. These markets have attractive growth potential as the middle class expands, but investors have not received the anticipated benefits from the big bets the company has made in these countries.

Bank of Nova Scotia remains a very profitable bank and rate cuts by the Bank of Canada and the United States anticipated later this year could put another tailwind behind bank stocks.

BNS stock trades near $68 per share at the time of writing. That’s up from $56 at the 12-month low last fall but still way off the $93 the stock reached in early 2022.

Investors who buy Bank of Nova Scotia at the current level can get a 6.2% dividend yield.

The bottom line on top stocks for TFSA passive income

BCE and Bank of Nova Scotia pay attractive dividends that should continue to grow. If you have some cash to put to work in a TFSA focused on passive income, these stocks look cheap today and deserve to be on your radar.

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. The Motley Fool has a disclosure policy. Fool contributor Andrew Walker owns shares of BCE.

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