The pullback in the share prices of several top Canadian dividend stocks over the past two years is giving self-directed Tax-Free Savings Account (TFSA) and Registered Retirement Savings Plan (RRSP) investors a chance to pick up high yields for portfolios focused on passive income and total returns.
Telus
Telus (TSX: T) is a major player in the Canadian communications industry with wireline and wireless networks providing essential mobile and internet services to homes and businesses across the country. The stock trades near $22.50 per share at the time of writing. It fell as low as $21 in the past 12 months and was above $34 at the high in 2022.
The slide over the past two years is mostly due to rising interest rates. High inflation forced the Bank of Canada to increase rates to try to cool off the economy and get inflation back down to a target of 2% from 8% in June 2022. Telus uses debt to fund part of its capital program. Higher borrowing costs cut into profits and can reduce cash available for dividends. The company intends to spend $2.6 billion in 2024 on projects.
Telus cut roughly 6,000 positions in 2023 to adjust to changing market conditions in the main domestic operations and at its international subsidiary. Despite the headwinds, the overall business still delivered adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of 7.6% last year and is targeting 5.5% to 7.5% growth in 2024. Based on the outlook, the stock is probably oversold.
Investors who buy Telus at the current level can get a 6.7% dividend yield.
TC Energy
TC Energy (TSX: TRP) completed its $14.5 billion Coastal GasLink pipeline project last year. The original budget was less than half that amount, so TC Energy is focused on monetizing non-core assets to shore up the balance sheet and move forward on additional projects with investment in 2024 targeted at $6 billion to $7 billion. Coastal GasLink will carry natural gas from producers to a new liquified natural gas facility (LNG) being built in British Columbia.
TC Energy expects the growth program to generate enough cash flow to support ongoing annual dividend increases of 3% to 5%. TRP stock trades near $51 at the time of writing compared to more than $70 at one point in 2022. Investors can get a 7.5% dividend yield at the current stock price.
Bank of Nova Scotia
Bank of Nova Scotia (TSX: BNS) is up about 15% from the 2022 low last fall when bargain hunters started to buy the stock on the anticipation of cuts to interest rates in 2024. This would ease pressure on borrowers who are struggling to cope with higher loan payments.
At the current price of around $64.50, Bank of Nova Scotia is still trading well below the $93 it reached in early 2022, so there is decent upside potential. Inflation in Canada came in at 2.9% in March. Progress is being made toward the 2% goal and the first rate cut by the central bank could arrive this summer. If that happens, Bank of Nova Scotia and its peers might catch a new tailwind.
In the meantime, investors can collect a solid 6.6% dividend yield.
The bottom line on top TSX dividend stocks
Telus, TC Energy, and Bank of Nova Scotia all pay attractive dividends that should continue to grow. If you have some cash to put to work in a TFSA or RRSP, these stocks deserve to be on your radar.
