Cuts to interest rates are driving income investors back to dividend stocks as rates offered on Guaranteed Investment Certificates (GICs) continue to fall. Top dividend stocks aren’t as cheap as they were late last year, but investors can still find deals.
Bank of Nova Scotia
Bank of Nova Scotia (TSX: BNS) trades near $67 per share at the time of writing compared to $93 at one point in early 2022.
Investors sent the stock as low as $55 in October last year on concerns that soaring interest rates would trigger a recession and drive up loan losses. The rebound that occurred through March 2024 came as markets started to anticipate rate cuts and a soft landing for the economy.
The Bank of Canada has already started to reduce rates, and the economy is holding its own despite the pressures being put on household budgets. Rate hikes and subsequent cuts take time to work their way through the system, so more turbulence could be on the way, and Bank of Nova Scotia has set aside increasing amounts of money in recent quarters to cover potential bad loans. The bank isn’t out of the woods yet, but provisions for credit losses (PCL) should stabilize in the coming months and could start to decline early next year if rate cuts continue and employment levels hold steady.
Bank of Nova Scotia is shifting its growth focus from South America to Canada, the United States, and Mexico. The bank recently announced a US$2.8 billion investment to take a 14.9% stake in KeyCorp, a U.S. regional bank, and more deals could be on the way. It will take time for the new strategy to bear fruit, but investors get paid well to wait. At the current share price, BNS stock provides a dividend yield of 6.3%.
TC Energy
TC Energy (TSX: TRP) trades near $62 per share at the time of writing. The stock is up 25% in the past year but still sits well below the $74 it hit in 2022.
TC Energy reached mechanical completion on its 670 km Coastal GasLink pipeline late last year. The final cost is pegged at roughly $14.5 billion, which is more than double the original budget. Commercial operation is scheduled to begin next year, so investors will start to see revenue flow as the pipeline transports natural gas from Canadian producers to a new liquified natural gas (LNG) export facility being built on the coast of British Columbia.
Management did a good job monetizing non-core assets over the past year to reduce debt. TC Energy is now focused on the remainder of its growth program, which will see the company invest $6 billion to $7 billion per year over the medium term. As new assets go into service, there should be adequate cash flow growth to support steady dividend increases. TC Energy raised the dividend in each of the past 24 years. Investors who buy TRP stock at the current level can get a yield of 6.15%.
The bottom line on top dividend 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, these stocks deserve to be on your radar.
