Canadian pensioners are searching for ways to get better returns on their hard-earned savings. One popular option for generating passive income involves buying TSX stocks with good track records of dividend growth.
Falling interest rates are already providing a new tailwind for some top Canadian dividend stocks that pulled back as interest rates soared, but investors can still find dividend deals.
Source: Getty Images
Telus
Telus (TSX: T) trades near $22 at the time of writing compared to $34 at the peak in 2022. The 12-month low is close to $20.
Communications companies spend billions of dollars on wireline and mobile infrastructure to ensure customers have access to the broadband services they need for work and entertainment. Telus uses debt to fund part of the capital program, so rising interest rates drive up borrowing costs. This is largely why the stock pulled back so much over the past two years. In addition, Telus International, a subsidiary that provides global firms with multilingual call centre and IT services, has suffered from a drop in revenue that forced Telus to reduce its guidance last year and has put pressure on the 2024 outlook.
Despite the headwinds, Telus still expects to deliver adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) growth in 2024 compared to last year. Consolidated EBITDA was 5.6% higher in the second quarter (Q2) of 2024 compared to the same quarter in 2023.
Management cut roughly 6,000 positions over the past year to position the company to succeed in the current environment. Lower operating costs and reduced borrowing expenses should provide support in 2025. Consolidated free cash flow is expected to be about $2.1 billion, so the dividend should be safe.
Investors who buy Telus stock at the current level can get a 7% dividend yield.
Bank of Nova Scotia
Bank of Nova Scotia (TSX: BNS) trades near $74 per share at the time of writing compared to a 12-month low of around $55. The stock is up more than 12% in recent weeks, and more gains could be on the way. BNS traded as high as $93 in early 2022.
The new chief executive officer cut staff by roughly 3% last year to reduce expenses and is shifting growth investments away from South America to focus on the United States, Canada, and Mexico under a new strategy. Bank of Nova Scotia already announced a US$2.8 billion deal to take a 14.9% stake in KeyCorp, a U.S. Regional bank. It is also planning to boost its presence in Quebec, a market it sees as attractive for growth.
Fiscal Q3 results showed profitability improvements in Canada and a decent performance in the international division despite the reduction in capital spending in the group. Provisions for credit losses remain high, but this should stabilize in the coming months as interest rate cuts give struggling borrowers some breathing room.
BNS is a turnaround bet, so investors need to be patient, but you get paid a decent 5.7% dividend yield to wait.
The bottom line on good stocks for passive income
Telus and Bank of Nova Scotia pay attractive dividends with high yields. If you have some cash to put to work in a portfolio focused on passive income, these stocks deserve to be on your radar.
