Bargain hunters started moving back into oversold TSX dividend stocks in recent weeks. Pensioners looking for high-yield names to add to their self-directed Tax-Free Savings Account (TFSA) are wondering which stocks might still be undervalued and good to buy today.
BCE
BCE (TSX: BCE) is Canada’s largest communications company with a current market capitalization near $42 billion. The stock trades close to $46 at the time of writing. This is above the 12-week low near $44, but way off the $73 the stock fetched two years ago before the Bank of Canada started to aggressively raise interest rates.
Higher interest rates drive up borrowing costs for companies like BCE that have large capital programs. The company invests billions of dollars every year on network upgrades across its wireless and wireline segments. As debt expenses move higher, profits take a hit and less cash is potentially available for payouts to shareholders.
BCE is also facing headwinds in its media business, where advertisers are spending less money on television and radio promotions. Part of this is due to a shift of ad money to digital alternatives. Businesses might also be trimming marketing budgets to preserve cash flow as they deal with higher interest rates.
Price wars in the telecom sector have also had an impact in the past year, so things have been challenging for BCE and its peers. BCE announced cuts of about 6,000 positions over the past 12 months to adjust to the current environment.
Despite the headwinds, management expects revenue to be flat or slightly higher in 2024 compared to last year. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) should grow by 1.5% to 4.5%. Based on the outlook, the pullback in the share price is likely overdone.
BCE raised the dividend by 3.1% for 2024. Reduced operating expenses due to the staff cuts and the impact of potential rate cuts by the Bank of Canada in the second half of 2024 and through 2025 should help improve results next year.
In the meantime, investors can get a dividend yield of 8.6% on BCE stock.
Bank of Nova Scotia
Bank of Nova Scotia (TSX: BNS) is up about $10 per share from the $55 it fell to in late October last year. The stock ran as high as $70 near the end of March and then slid through most of April to about $63 before picking up the recent tailwind. At the current price of nearly $65, the stock still looks cheap. Bank of Nova Scotia was as high as $93 in early 2022 at the top of the post-pandemic rally.
If the Bank of Canada and the U.S. Federal Reserve start cutting interest rates in the coming months, there should be renewed interest in bank stocks. Investors have been concerned that the upward trend in provisions for bad loans could spike if the economy goes into a deep recession while interest rates are still elevated. So far, the economy has absorbed the rate hikes and unemployment remains near multi-decade lows in the United States and has only ticked up slightly in Canada.
Bank of Nova Scotia’s new chief executive officer cut staff numbers by 3% last year and is prioritizing growth in Canada, the United States, and Mexico. This is a shift from the bank’s previous focus on Colombia, Peru, and Chile, where Bank of Nova Scotia invested billions of dollars on acquisitions to build businesses in these emerging markets.
It could take some time for the transition to translate into better shareholder returns, but investors who buy the stock at the current level get paid a decent 6.45% dividend yield to wait for the recovery.
The bottom line on top TSX dividend stocks
Ongoing volatility should be expected, but BCE 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.
