Income investors who missed the recent rebound in dividend stocks are wondering which TSX dividend-growth picks might still be undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) portfolio focused on high yields.
BCE
BCE (TSX:BCE) took a beating over the past two years, falling from $74 at the high point in 2022 to as low as $43 this summer. The stock has recovered a bit but still only trades near $47 at the time of writing.
High interest rates have put pressure on BCE’s earnings due to the sharp increase in borrowing expenses. The company uses debt to fund part of its capital program, which includes expanding the 5G network and installing fibre optic lines to provide customers with more data capacity. Canada is a large country with a relatively small population, so it is expensive for BCE and its peers to build and maintain communications infrastructure.
The Bank of Canada has already reduced interest rates by 0.75% in 2024, and more cuts are likely on the way. This will help BCE in 2025 and beyond.
BCE trimmed more than 10% of its staff in the past year in an effort to streamline the business and adjust to challenging market conditions in the media segment. Investors will need to be patient, and near-term volatility should be expected, especially if a recession occurs next year. That being said, BCE is likely oversold at this level, and the stock currently provides a dividend yield of 8.5%. As long as there isn’t a material drop in revenue, the dividend should be safe.
Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS) is back in the number three spot among the Canadian banks with its current market capitalization of $88 billion. The stock trades near $71 compared to $55 at the 12-month low but is still way off the $93 it reached in early 2022.
Falling interest rates will ease pressure on businesses and households that are carrying too much debt. The reduced interest expenses should lower default risks and will enable Bank of Nova Scotia to cut back the size of its provisions for credit losses (PCL) that have increased over the past few quarters. This should support profits and can free up more cash for dividends.
At the time of writing, BNS stock offers a dividend yield of 6%.
TC Energy
TC Energy (TSX:TRP) increased its dividend in each of the past 24 years. The company’s capital program is expected to be $6 billion to $7 billion annually over the medium term. This should boost cash flow enough to maintain steady dividend growth.
Management has done a good job of reducing debt through the monetization of non-core assets over the past year. In addition, the 670-kilometre Coastal GasLink pipeline is expected to go into commercial service in 2025.
TRP stock is up from $45 in early October last year to $63 today but is still below the $74 it reached in 2022. Investors who buy the stock at the current level can get a dividend yield of 6%.
Enbridge
Enbridge (TSX:ENB) is at its 12-month high, trading near $56 per share. This is getting close to the $59 it hit in 2022 before rate hikes in Canada and the United States sent pipeline stocks into a tailwind.
Lower borrowing expenses will help profits and should free up cash for dividends. In addition, Enbridge is wrapping up a major acquisition in the United States and has a $24 billion secured capital program on the go that will boost cash flow over the medium term. The board has increased the dividend annually for the past 29 years, and more gains should be on the way. At the time of writing, ENB stock provides a dividend yield of 6.5%.
The bottom line on top Canadian dividend stocks
BCE, Bank of Nova Scotia, TC Energy, and Enbridge all pay attractive dividends and trade at reasonable prices. If you have some cash to put to work in a portfolio focused on passive income, these stocks deserve to be on your radar.
