Rate cuts by the Bank of Canada are putting a new tailwind behind top TSX dividend stocks. Income investors are wondering which dividend-growth stocks are still undervalued and good to buy for a self-directed portfolio focused on passive income and long-term total returns.
Fortis
Fortis (TSX: FTS) is a good example of a top dividend stock that Canadian investors can buy and simply hold for decades. The utility company has increased its dividend in each of the past 50 years and expects to raise the payout by 4-6% annually through 2028.
Revenue and cash flow growth will come as the $25 billion capital program increases the rate base from $37 billion in 2023 to above $49 billion in 2028.
Fortis trades near $56 per share at the time of writing. This is up from the 12-month low around $50, but is still way off the $65 the stock reached in 2022. The decline that occurred over the past two years was largely due to rising interest rates. Fortis uses debt to fund part of its capital program, so higher borrowing costs can put a pinch on profits. Rate cuts should attract more investors to the stock.
Fortis currently provides a 4.2% dividend yield.
Enbridge
Enbridge (TSX: ENB) also has about $25 billion in secured capital projects on the go to drive growth. This is in addition to a wave of acquisitions in the past few years that have expanded the asset portfolio to include export facilities, a large renewable energy developer, and a significant boost to the size of the natural gas utility operations.
Enbridge has increased the dividend in each of the past 29 years. The company is targeting distributable cash flow (DCF) growth of 3% per year into 2026 and then 5% annually starting in 2027. ENB stock trades for $50.50 at the time of writing. It was as high as $59 in 2022, so there is decent upside potential. Investors who buy at the current level can get a dividend yield of 7.25%.
Bank of Nova Scotia
Rate cuts reduce net interest margins for banks, but the reductions will also help lower the number of borrowers who go into default. Provisions for credit losses (PCL) have been climbing over the past few quarters as Bank of Nova Scotia (TSX: BNS) and its peers set more cash aside to cover potential loan losses. PCL should stabilize in the coming months, and investors might even start to see reversals in 2025, as long as the economy doesn’t slide into a recession.
Bank of Nova Scotia trades near $63.50 at the time of writing. The stock was as high as $93 in early 2022 and slipped as low as $55 last fall. The new chief executive officer has reduced staff by about 3% to cut costs and is implementing a growth strategy that will focus more on Canada, the United States, and Mexico and less on South America, as has been the strategy with previous leadership. It will take time for investors to see the benefits, but you get paid well to wait. At the current price, investors can get a dividend yield of 6.7%.
The bottom line on top TSX dividend stocks
Fortis, Enbridge, and Bank of Nova Scotia pay attractive dividends that should continue to grow. If you have some cash to put to work, these stocks still look cheap and deserve to be on your radar.
