Inflation is down considerably in the past year and appears headed to the 2% target set by the Bank of Canada. As a result, additional cuts to interest rates are expected in the coming months and through 2025. This should provide an extra tailwind for dividend stocks that are already moving higher.
Investors who missed the bounce off the 12-month lows are looking for steady TSX dividend-growth stocks that can still offer attractive returns.
Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS) trades near $71 per share compared to $93 at one point in early 2022. The stock is off the 12-month low of around $55, but still offers investors a 6% dividend yield at the time of writing.
Bank of Nova Scotia’s fiscal third-quarter (Q3) 2024 results showed that borrowers carrying high levels of debt are struggling to cover the jump in interest costs caused by the hikes to interest rates that occurred in 2022 and 2023.
In the past few months, however, the Bank of Canada has trimmed interest rates by 0.75%. More cuts are expected through next year as the central bank tries to avoid pushing the economy into a recession. Bank of Nova Scotia’s provisions for credit losses (PCL) should stabilize and then start to decline in the next few quarters. If unemployment stays near current levels or only rises modestly, there could even be PCL reversals late next year or in 2026. This would provide a nice boost to profits and could free up more cash for dividends.
Fortis
Fortis (TSX:FTS) raised its dividend in each of the past 50 years and is targeting annual dividend growth of 4-6% through at least 2028. This is the kind of stability investors should look for when choosing dividend stocks that should hold up well during a recession.
Fortis operates $69 billion in utility assets across Canada, the United States, and the Caribbean. The businesses include power generation facilities, electricity transmission networks, and natural gas distribution utilities. Revenue is rate-regulated, meaning cash flow tends to be predictable and reliable.
Fortis is working on a $25 billion capital program that will boost the rate base from $37 billion in 2023 to more than $49 billion in 2028. The resulting jump in cash flow should support the planned dividend growth.
Investors who buy FTS stock at the current level can get a dividend yield of 3.8%.
The bottom line on dividend stocks
Bank of Nova Scotia and Fortis pay attractive dividends that should continue to grow. If you have some cash to put to work in a portfolio targeting passive income, these stocks deserve to be on your radar.
