TFSA: 2 Dividend Stocks That Could Rally in 2025

These stocks pay good dividends and still look cheap.

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Many top Canadian dividend stocks still trade below 2022 highs despite the broader TSX now being at a record level. Cuts to interest rates in Canada are expected to continue, and the U.S. Federal Reserve will likely begin reducing interest rates as early as next month. This could set the stage for a rally in dividend stocks next year as yield-hungry investors shift out to fixed-income alternatives.

BCE

BCE (TSX:BCE) trades for close to $47 per share at the time of writing compared to $74 at one point in 2022. The steep decline caught many long-term BCE investors by surprise.

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High interest rates drove much of the pullback through 2022 and 2023 as investors worried that rising borrowing expenses would put pressure on the dividend growth. BCE spends billions of dollars every year on capital projects that include expansion of the 5G network and installation of fibre optic lines. The company uses debt to fund part of its capital programs, so the jump in debt expenses has had an impact on profits. In fact, BCE raised the dividend by 3.1% in 2024 compared to an average annual increase of about 5% over the previous 15 years.

Market conditions have also been challenging for the communications giant. Mobile and internet price wars drove down fees on subscriptions, while falling ad revenue in the media business forced BCE to sell or close dozens of radio stations.

Looking ahead, the worst should be over despite ongoing headwinds. BCE reduced staff by roughly 6,000 positions to reduce expenses. The company is also trimming its capital program to preserve cash. Price battles will eventually level off, and steady rate cuts by the central bank will help reduce borrowing costs.

BCE still expects 2024 revenue to be flat or slightly higher compared to 2023, and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) should be up a bit, so the pullback in the share price might be overdone.

Ongoing volatility is expected, but investors who buy now can get a dividend yield of 8.5% from BCE.

Bank of Nova Scotia

Bank of Nova Scotia (TSX:BNS) is in a transition phase as the new chief executive officer pursues a strategy shift that will allocate more capital to Canada, the United States, and Mexico and less to Peru, Chile, and Colombia, where previous bosses at the bank focused their growth investments.

Bank of Nova recently announced a US$2.8 billion deal to buy a 14.9% stake in a U.S. regional bank, KeyCorp, to get a foothold in the American market where it has trailed its peers. The deal was done at a decent valuation, so there is good upside potential for BNS investors.

The company’s fiscal third-quarter (Q3) 2024 results showed that the transition efforts are starting to bear fruit. The international division delivered solid results despite receiving less capital, and the Canadian operations saw deposits rise.

Bank of Nova Scotia’s provisions for credit losses (PCL) came in at $1.05 billion in the quarter compared to $819 million in the same period last year and were slightly higher than fiscal Q2 this year. Falling interest rates should start to take pressure off borrowers carrying too much debt, so PCL should stabilize soon and then decline in 2025.

Bank of Nova Scotia trades near $67 per share at the time of writing. It was as high as $93 in 2022. Investors who buy at the current price can get a dividend yield of 6.3%.

The bottom line on top dividend stocks

BCE and Bank of Nova Scotia pay attractive dividends and still trade at discounted prices. If you have some cash to put to work in a self-directed TFSA, these stocks deserve to be on your radar.

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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.

The Motley Fool recommends Bank Of Nova Scotia. The Motley Fool has a disclosure policy. Fool contributor Andrew Walker owns shares of BCE.

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