Dividends can make up a meaningful part of the total returns generated from top TSX stocks held inside a self-directed Registered Retirement Savings Plan (RRSP) portfolio. With rates on Guaranteed Investment Certificates (GICs) now in decline, investors are wondering which high-yield dividend stocks might still be undervalued and good to buy today.
Bank of Nova Scotia
Bank of Nova Scotia (TSX: BNS) is shifting its growth focus to the United States under the new chief executive officer. The bank recently announced a US$2.8 billion deal to buy nearly 15% of KeyCorp, a U.S. bank. In addition, Bank of Nova Scotia is setting up a mortgage capital markets group based out of Texas.
The moves are designed to build a more significant American presence. Bank of Nova Scotia’s large Canadian peers all made big American bets over the past decade that helped deliver better shareholder returns. As the outlier in the group, Bank of Nova Scotia instead chose to invest billions of dollars in assets in Mexico, Chile, Peru, and Colombia. Mexico will remain an important part of the growth strategy, according to company statements, but the South American businesses might not see additional investments, and it wouldn’t be a surprise to see them monetized if the right buyers emerge.
It will take time for the new strategy to deliver results, but investors get paid well to wait. Bank of Nova Scotia provides a dividend yield of 6.6% at the current share price near $63.50.
The stock is up from $55 last fall but still trades well off the $93 it reached in early 2022. Falling interest rates should stabilize provisions for credit losses (PCL) in the coming quarters as struggling borrowers get some relief.
Near-term volatility should be expected, especially if the economy slips into a meaningful recession, but Bank of Nova Scotia already looks cheap, remains very profitable, and should deliver solid total returns over the long haul.
TC Energy
TC Energy (TSX: TRP) is up about 20% in the past four months and more gains should be on the way. The stock trades near $60 compared to $74 at one point in 2022 before rate hikes by the Bank of Canada and the U.S. Federal Reserve sent pipeline stocks into a pullback.
TC Energy uses debt to fund part of its capital program. Pipeline projects can cost billions of dollars and sometimes take years to build. The company’s Coastal GasLink project, which received the green light in 2018, didn’t reach mechanical completion until late last year and saw the budget more than double to $14.5 billion over that timeframe. Debt taken on to get the project to the finish line put added pressure on TC Energy’s share price, but the company has done a good job of shoring up the balance sheet through the monetization of some non-core assets.
Looking ahead, lower interest rates will reduce borrowing expenses, and TC Energy’s ongoing capital program should generate steady cash flow expansion in the coming years to support ongoing dividend growth. The board raised the dividend in each of the past 24 years. Investors who buy the stock at the current price can get a dividend yield of 6.4%.
The bottom line on top RRSP stocks
Bank of Nova Scotia and TC Energy pay attractive dividends that should continue to grow. If you have some cash to put to work in a self-directed RRSP, these stocks deserve to be on your radar.
