Retirees and other investors have an opportunity to buy top Canadian dividend stocks at discounted prices for a self-directed Tax-Free Savings Account (TFSA) focused on generating high-yield passive income.
Buying stocks on pullbacks requires a contrarian investing style and the patience to ride out ongoing volatility. The strategy, however, can generate attractive long-term total returns as dividends rise and share prices rebound.
Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS) trades for less than $63 per share at the time of writing. The share price is up about 12% in the past six months but still way down from the $93 the stock reached in early 2022.
BNS stock has underperformed its large Canadian peers in recent years, but that could change. The new chief executive officer is shifting the bank’s growth strategy away from Colombia, Peru, and Chile to Canada, the United States, and Mexico.
Bank of Nova Scotia’s overall loan book remains in solid shape, even as provisions for credit losses (PCL) have increased in recent quarters due to the impact of rising interest rates on commercial and residential borrowers. Despite the headwinds, the bank remains very profitable. Bank of Nova Scotia reported adjusted net income of $8.44 billion in fiscal 2023 and expects the FY24 results to be similar or slightly better.
Investors who buy BNS stock at the current level can get a 6.75% dividend yield.
Telus
Telus (TSX:T) trades for less than $22 per share at the time of writing compared to $34 at the peak in 2022. The drop is largely the result of higher interest rates. Telus uses debt to fund part of its capital program, so higher rates drive up borrowing costs that cut into profits. The company also saw its Telus International subsidiary go through a tough period last year.
Telus still delivered adjusted growth in earnings before interest, taxes, depreciation, and amortization (EBITDA) of 7.6% in 2023 and expects 2024 adjusted EBITDA growth to be 5.5% to 7.5%.
Telus has raised the dividend annually for more than 20 years. At the current share price, investors can get a yield of 6.9%.
Enbridge
Enbridge (TSX:ENB) is a dividend star with its 29-year streak of dividend growth. The board raised the payout by 3.1% for 2024, and investors should see ongoing hikes in the 3-5% range.
Enbridge is completing its US$14 billion acquisition of three natural gas utilities this year and is working on a $25 billion secured capital program. These initiatives are expected to boost distributable cash flow by 3% annually through 2026 and by 5% beyond that timeframe.
As soon as interest rates begin to decline there should be a shift of investor interest back into high-yield pipeline stocks. Enbridge trades near $49 per share at the time of writing. The stock was as high as $59 in 2022, so there is decent upside potential.
Investors can now get a 7.5% dividend yield from ENB stock at the current share price.
The bottom line on top stocks for passive income
Bank of Nova Scotia, Telus, and Enbridge pay attractive dividends that should continue to grow. If you have some cash to put to work in a TFSA targeting passive income, these stocks look cheap today and deserve to be on your radar.
