The pullback in the share prices of several top Canadian dividend stocks is giving investors an opportunity to buy great TSX dividend-growth stocks at discounted prices for a self-directed Tax-Free Savings Account (TFSA) focused on high-yield passive income.
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Enbridge
Enbridge (TSX: ENB) has increased its dividend in each of the past 29 years. The energy infrastructure giant’s current dividend yield is 7.6% and more dividend increases should be on the way.
Enbridge is in the process of closing its US$14 billion acquisition of three natural gas utilities in the United States. The company also has a $25 billion capital program on the go to boost revenue in the coming years. Management expects distributable cash flow (DCF) to grow by 3% annually through 2026 and by 5% after that timeframe. This should support ongoing annual dividend increases in the 3-5% range.
ENB stock trades near $48 per share at the time of writing. It was as high as $59 in 2022, so there is decent upside potential on a rebound. Interest rates are already heading lower in Canada, and the U.S. will likely begin to cut rates in late 2024 or early 2025. The reduction in borrowing costs will free up more cash and could bring investors back into the stock.
Bank of Nova Scotia
Bank of Nova Scotia (TSX: BNS) trades near $63.50 at the time of writing compared to $93 in early 2022 at the peak of the rally that occurred after the 2020 market crash. Rising provisions for credit losses (PCL) due to the impact of high interest rates on over-leveraged borrowers is one reason the stock has trended lower. With interest rates now falling in Canada and expected to decline in the U.S. in the coming months, PCL should flatten out and then start to decline in the next few quarters.
Bank of Nova Scotia announced a plan to cut about 3% of its staff last year to reduce costs. Investors should see the benefits in the 2024 and 2025 results. The bank is also shifting its growth strategy away from South America to focus more on Canada, the United States, and Mexico. It will take time for the transition to bear fruit, but investors currently get paid a solid 6.7% dividend yield to ride out any ongoing turbulence.
BNS stock has underperformed its large peers in recent years but looks attractive at the current valuation and could outperform if the new growth strategy is successful.
The bottom line on top stocks for passive income
Near-term volatility should be expected, but Enbridge and Bank of Nova Scotia already look cheap and pay attractive dividends that should continue to grow. If you have some cash to put to work, these high-yield stocks deserve to be on your TFSA radar.
