Retirees seeking passive income have an opportunity to buy top TSX dividend-growth stocks at discounted prices for their self-directed portfolios. Buying undervalued stocks requires the patience to ride out potential further downside, but the strategy can boost returns on savings.
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TC Energy
TC Energy (TSX: TRP) raised its dividend in each of the past 24 years, and more annual gains should be on the way.
The company reached mechanical completion on its 670km Coastal GasLink pipeline project last year. The asset will move natural gas from Canadian producers to a new liquified natural gas (LNG) facility being built on the coast of British Columbia. Full operation is expected in 2025.
TC Energy has other capital projects on the go to drive growth. The company expects investments to be about $8 billion in 2024 and will be in the $6 billion to $7 billion range annually over the medium term. As new assets go into service, the rise in cash flow should support steady dividend growth.
Bargain hunters started moving into the stock last fall on the expectation that cuts to interest rates in 2024 and 2025 will reduce borrowing costs for the capital projects and boost cash that is available to reduce debt or pay out as distributions. TC Energy trades near $51 per share at the time of writing. This is up from the 12-month low near $44 but still way off the $74 the stock reached in 2022.
Investors who buy at the current level can get a 7.5% dividend yield.
Bank of Nova Scotia
Bank of Nova Scotia (TSX: BNS) trades below $62 per share at the time of writing compared to $93 in early 2022.
The Bank of Canada recently cut its interest rate by 0.25%. South of the border, the U.S. Federal Reserve is expected to start reducing its target rate before the end of the year or in early 2025. Lower borrowing costs will help households and businesses that are struggling with too much debt. Bank of Nova Scotia and its peers have increased provisions for loan losses (PCL) in recent quarters. That trend should flatten out over the coming year, and investors could even see PCL reversals near the end of 2025 as long as the economy remains resilient through the rate-cut process.
Bank of Nova Scotia remains a very profitable bank and has a solid capital position to ride out economic turbulence. The new strategy is to focus growth investments on Canada, the United States, and Mexico and shift away from South America. It will take some time to deliver results, but investors get paid well enough to wait for the turnaround. At the current level, BNS stock provides a dividend yield of 6.9%.
Bank of Nova Scotia paid its first dividend in 1833. The current quarterly payout is $1.06 per share.
The bottom line on top stocks for passive income
TC Energy and Bank of Nova Scotia pay attractive dividends that should continue to grow. If you have some cash to put to work in a portfolio focused on high-yield dividends, these stocks deserve to be on your radar.
