The recent pullback in the TSX is giving self-directed Tax-Free Savings Account (TFSA) investors a chance to buy top Canadian dividend stocks at discounted prices for portfolios targeting high-yield passive income.
TC Energy
TC Energy (TSX: TRP) is a major player in the North American energy infrastructure industry, with more than 90,000 km of natural gas pipelines and 650 billion cubic feet of natural gas storage capacity. The company also has oil pipelines and power generation facilities. Management plans to spin off the oil pipelines business this year to raise cash and unlock value for shareholders. In addition, the company expects to monetize about $3 billion in other assets, following $5.3 billion in deals in 2023.
The asset sales will continue to shore up the balance sheet as TC Energy moves forward on its capital program. Last year TC Energy’s 670km Coastal GasLink pipeline reached mechanical completion. The project encountered a series of problems and delays that drove the final cost to an estimated $14.5 billion, which is more than double the original budget.
Most of the balance sheet pain should be in the rearview mirror at this point, although elevated interest rates are making ongoing debt financing more expensive.
TRP stock trades near $48.50 at the time of writing compared to $74 at the peak in 2024.
TC Energy delivered solid financial results in 2023, despite the headwinds. Management expects the capital program to support planned annual dividend increases of 3% to 5% over the medium term. The board has increased the payout annually for more than 20 years.
Investors who buy the stock at the current level can get a 7.9% dividend yield.
Bank of Nova Scotia
Bank of Nova Scotia (TSX: BNS) trades near $64.50 at the time of writing. This is up from a 12-month low of around $55 but still way off the $93 the stock reached in early 2022.
Investors are still concerned that high interest rates will have to remain in place for longer than economists expect. The Bank of Canada and the U.S. Federal Reserve increased rates aggressively in the past two years to try to cool off the economy and get inflation under control. Progress has been made, but inflation for March came in at 3.5% in the U.S. and 2.9% in Canada. The central banks would like to see inflation get down to 2%.
Bank of Nova Scotia and its peers have increased provisions for loan losses in recent quarters, and the trend will likely continue until rates start to decline. The overall loan book, however, remains in solid shape, and Bank of Nova Scotia has a good capital position to ride out some economic turbulence.
Economists expect a soft landing for the economy as the rate hikes work their way through the system. As long as there isn’t a sharp jump in unemployment, the big Canadian banks should be in good shape.
Investors who buy BNS stock at the current level can get a 6.6% dividend yield.
The bottom line on top stocks for passive income
TC Energy and Bank of Nova Scotia pay attractive dividends that should continue to grow. Near-term volatility should be expected, but these stocks already look cheap and deserve to be on your radar.
