TFSA Investors: 2 Dividend Stocks I’d Buy and Hold Forever

These two stocks could provide long-term investors multi-year returns of more or less 10% per year

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Piggy bank with word TFSA for tax-free savings accounts.

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Here are a couple of blue chip dividend stocks that offer a blend of passive income and stability. The bank stock offers a juicy dividend yield of about 6.7%, while the food stock offers stability. For long-term investors, under normal market conditions, these investing ideas should provide multi-year returns of more or less 10% per year.

Bank of Nova Scotia stock

Perhaps investors are tired of hearing the Bank of Nova Scotia (TSX:BNS) story. The big Canadian bank stock continues to trade at multi-year lows. It has been in a downtrend since early 2022. Specifically, it’s down about 20% from that level.

At $63.42 per share, BNS stock trades at a blended price-to-earnings ratio (P/E) of approximately 9.8, which represents a discount of about 10% from its long-term normal valuation. Its earnings still cover its dividend. Because of a cheaper stock price, it now offers a high dividend yield of almost 6.7%.

That said, its payout ratio is higher than normal. For example, its trailing-12-month payout ratio was about 76% of its net income. As well, its loan loss provisions and provision for credit losses (PCL) on impaired loans as a percentage of average net loans and acceptances have been higher than the Canadian banking peer average.

Specifically, in the fiscal year to date, its PCL as a percentage of average net loans and acceptances was 0.52% and its PCL on impaired loans as a percentage of average net loans and acceptances was 0.51%.

This means if the situation worsens, Scotiabank would need to increase its reserves, thereby cutting into its earnings even more. This is why the stock continues to be weighed down and underperforms its peers.

Still, for investors who have long-term capital to park somewhere and are willing to take higher risk for more income, they could buy and hold some shares of Bank of Nova Scotia stock in their Tax-Free Savings Account (TFSA).

Empire

Empire (TSX:EMP.A) stock doesn’t offer a large dividend like Scotiabank stock, but it should provide solid returns for long-term investors. Canadians would recognize many of its brands, such as Safeway, Sobeys, Thrifty Foods, Lawtons Drugs, IGA, and so on, and have probably shopped at its convenient locations.

EMP.A Dividend Yield Chart

EMP.A Dividend Yield data by YCharts

First, the grocery store chain is a reliable business that should deliver stable earnings through the economic cycle.

Second, at $32.32 per share, the stock trades at a blended P/E of about 11.7, which represents a meaningful discount of over 20% from its long-term normal valuation. Analysts think it trades at a discount of about 15%.

Third, at the recent price, it provides a dividend yield of almost 2.3%, which is at the high end of its 10-year range, as shown in the chart above. The consumer staples stock has increased its dividend for almost 30 years, and its 10-year dividend growth rate was 7.6%. Its trailing 12-month payout ratio was sustainable at about 21%. The stock’s dividend hike last June was north of 10%. It’s possible for it to increase its dividend by about 7 to 10% this month.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Kay Ng has positions in Bank of Nova Scotia. The Motley Fool recommends Bank of Nova Scotia. The Motley Fool has a disclosure policy.

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