Dividend Deals: 2 Top TSX Stocks That Still Look Undervalued

Who doesn’t want more current income? Here are a couple of dividend deals to investigate!

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Dividend income is one of the easiest ways for Canadians to earn passive income as long as you have some savings that you don’t need to tap into for a long time. Here are some dividend deals up for grabs today!

Bank of Nova Scotia

The Bank of Nova Scotia (TSX:BNS) stock price has been weak since 2022. In fact, the international bank stock has declined 31% since the start of 2022.

Here’s how the bank has performed recently. In the first half of this fiscal year, the bank’s revenues climbed 5.7% to $16.8 billion, while the loan loss provisions rose 46% to nearly $2 billion, weighing on earnings in the process.

The loan loss provisions on impaired loans (as a percentage of average net loans and acceptances) was still low at 0.51%, but it is up from 0.31% a year ago. Ultimately, the bank reported net income of $4.3 billion, up 10% and diluted earnings per share of $3.25, up 7.6%.

The developing markets that Bank of Nova Scotia operates in could provide higher growth in the long run. However, the bank’s loan loss provisions are also expected to be higher in tough economic times because they are riskier markets to operate in.

BNS Chart

BNS data by YCharts. A look at the relationship between the change in stock price and a safe and growing dividend.

As the Canadian bank stock price has fallen and the bank has maintained its dividend, it now offers a fabulous dividend yield of almost 6.9%, making it a good consideration for income investors.

The idea is to pocket the big quarterly dividend while waiting for long-term price appreciation. Its payout ratio is estimated to be about 65% of adjusted earnings this year. So, it’s probable that the bank could continue to freeze its dividend until earnings improve.

On the other hand, if things work out well, investors could potentially earn total returns of about 14% per year over the next five years, as the bank stock turns around.

Another big dividend stock that is down and could turn around over the next five years is TELUS (TSX:T).


Big Canadian telecom stocks have generally been hit by higher interest rates since 2022, which increase the cost of capital for these businesses that have large debt on their balance sheets.

T Chart

T data by YCharts

For TELUS, in particular, the stock has declined 30% since the start of 2022. Its growing dividend did not stop investors from earning a negative return in the period. That said, there’s light at the end of the tunnel, as the Bank of Canada has begun reducing interest rates with many believing that more rate cuts could be coming. Even though interest rates likely won’t return to the previous decade’s super low levels, any interest rate decline will be welcoming for the telecoms.

Another catalyst that could trigger TELUS stock to turn around is reduced capital spending from finishing the fibre optic build-out, which should increase the stock’s free cash flow generation, which means more dividend increases to come.

For your reference, TELUS stock has increased its dividend for two decades, and its five-year dividend growth rate is 6.7%. At $20.82 per share at writing, TELUS stock offers a whopping dividend yield of 7.5%.

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 and TELUS. The Motley Fool recommends Bank of Nova Scotia and TELUS. The Motley Fool has a disclosure policy.

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