Income investors and those that use dividend stocks to build retirement funds have an opportunity to buy some top TSX dividend-growth stocks at discounted prices for their self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolios.
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Enbridge
Enbridge (TSX: ENB) trades near $50 per share at the time of writing compared to $58 about this time two years ago. The stock is off the 12-month low at around $43, but more upside should be on the way.
Rising interest rates in Canada and the United States are largely to blame for the pullback that has occurred rather than any operational issues with the company. The Bank of Canada and the U.S. Federal Reserve raised interest rates aggressively in 2022 and 2023 to slow down the economy in an effort to get inflation under control.
These efforts are working. Inflation is down from 8% in Canada and 9% in the United States in June 2022 to 2.9% and 3.5%, respectively, as of the March 2024 reports. This is still above the 2% target, but most economists expect the central banks to start cutting rates before the end of 2024 to avoid pushing the economy into a recession.
Enbridge uses debt to fund its growth program, which includes acquisitions and development projects. Higher borrowing costs reduce profits and cut into cash levels that can be used for distributions. With rate hikes likely done and rate cuts on the horizon, investor interest in Enbridge should continue to pick up momentum.
The company has a multi-year $25 billion secured capital program on the go and is wrapping up US$14 billion in acquisitions in 2024. These initiatives are expected to drive 3% annual growth in distributable cash flow (DCF) through 2026 and 5% afterwards. Based on this outlook, investors should see the dividend continue to increase at similar rates.
Enbridge has given investors a dividend boost in each of the past 29 years. At the time of writing, the stock provides a 7.3% dividend yield.
Bank of Nova Scotia
Bank of Nova Scotia (TSX: BNS) cut about 3% of its staff last year and put new faces in most senior positions as part of an overhaul being carried by the new chief executive officer, who took charge in early 2023.
The company completed a strategic review of its assets in 2023 and has indicated that its growth investments going forward will focus on Canada, the United States, and Mexico. This is a shift away from Colombia, Peru, and Chile where the bank invested billions of dollars on acquisitions over the past decade. The South American members of the Pacific Alliance trade bloc arguably offer attractive growth potential as the middle class expands. Bank of Nova Scotia investors, however, have not benefited as much as the shareholders of the other large Canadian banks that focused more on the U.S. market in recent years.
It will take some time for the turnaround efforts to bear fruit, but contrarian investors can pick up a solid 6.4% dividend yield from BNS stock right now while they wait for the recovery. Bargain hunters started moving into the stock last fall when it dipped to $55. The shares currently trade near $66 but are still way off the $93 mark that Bank of Nova Scotia hit in early 2022, so there should still be some decent upside for patient investors.
The bottom line on top TSX dividend stocks
Ongoing volatility should be expected until the central banks start cutting interest rates. That being said, Enbridge and Bank of Nova Scotia pay attractive dividends right now 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.
