Registered Retirement Savings Plan (RRSP) investors who missed the big rally after the 2020 market crash have another opportunity to buy some of Canada’s best dividend stocks at discounted prices for portfolios targeting high yields.
BCE
BCE (TSX:BCE) trades near $45 per share at the time of writing compared to more than $73 at the high point in 2022.
The extended decline over the past two years is largely due to the impact of soaring interest rates. BCE uses debt to fund part of its large capital program. The communications giant invests billions of dollars per year to expand and upgrade its wireless and wireline network infrastructure.
Higher borrowing expenses are cutting into profits and can reduce cash that is available for dividend payments. BCE raised the dividend by 3.1% for 2024. This is down from the 5% average increase over the previous 15 years.
The Bank of Canada just cut interest rates by 0.25%, shifting its strategy from fighting inflation to avoiding a recession. Rate cuts are expected to continue through 2025. This will benefit BCE through lower debt expenses. A drop in interest rates also reduces returns available for investors on fixed-income alternatives. As such, the rate cuts should bring back some investors who might have shifted funds out of BCE to Guaranteed Investment Certificates (GICs) over the past two years.
BCE announced staff cuts of about 6,000 positions over the past year to adjust to challenging conditions in the media group and to position the overall business for success as the communications sector evolves. Lower salary expenses should help the company hit its financial targets in 2024 and 2025.
BCE’s 2024 outlook calls for revenue and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to be similar to 2023 or slightly higher. Based on this guidance and the anticipated benefits from lower interest rates and reduced payroll costs the stock is probably oversold right now.
Investors who buy BCE stock at the current level can get a dividend yield of 8.8%.
Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS) traded as high as $93 in early 2022. The stock then went into a steady decline as investors bailed out of the bank sector on fears that aggressive rate hikes in Canada and the United States would trigger a recession and cause a wave of loan defaults. BNS stock fell as low as $55 last fall and currently trades close to $63.50.
A strong jobs market has helped to keep the economy in good shape, but the pain caused by the sharp increase in borrowing costs is evident. Bank of Nova Scotia set aside about $1 billion for potential loan losses in the fiscal second quarter (Q2) of 2024. This is up from a provision for credit losses (PCL) of $709 million in the same quarter last year. PCL will likely remain elevated this year, but cuts to interest rates will ease the burden on troubled borrowers, and PCL should start to decline in 2025 as long as the economy remains in good shape.
Bank of Nova Scotia continues to generate solid profits despite the headwinds. Adjusted net income in fiscal Q2 2024 came in at $2.1 billion compared to $2.16 billion in Q2 2023. The bank has a strong capital cushion to ride out ongoing turbulence and could even use the excess cash to make a strategic acquisition.
Investors who buy BNS stock at the current level can get a dividend yield of 6.7%.
The bottom line on top TSX dividend stocks for RRSP investors
BCE and Bank of Nova Scotia pay attractive dividends that should continue to grow. If you have some RRSP cash to put to work, these stocks look cheap today and deserve to be on your radar for a portfolio targeting high dividend yields.
