Self-directed Registered Retirement Savings Plan (RRSP) investors are searching for top TSX stocks that pay good dividends and have long track records of distribution growth. The TSX is near a record high right now, but investors who missed the rally this year can still find quality dividend stocks trading at reasonable prices.
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Bank of Nova Scotia
Bank of Nova Scotia (TSX: BNS) trades near $71 per share at the time of writing. Investors who bought the stock a year ago are already up about 18%, but more gains could be on the way as interest rates decline in Canada and the United States.
Bank of Nova Scotia traded as high as $93 in early 2022 before the Bank of Canada started to aggressively raise interest rates to cool off an overheated economy and get inflation under control. Rising interest rates are normally good for banks in that they can boost net interest margins. The speed and size of the hikes, however, have put borrowers with too much debt in a difficult situation. As interest charges soared, many businesses and households have struggled to cover their payments. This led to a sharp increase in provisions for credit losses at Bank of Nova Scotia. PCL came in at $1.05 billion in fiscal Q3 2024 compared to $819 million in the same period last year.
Recent cuts to interest rates by the central bank will ease pressure on borrowers. As such, the PCL should start to decline in the coming quarters.
Bank of Nova Scotia is shifting its growth spending from South America to the United States, Canada, and Mexico. The bank recently announced a US$2.8 billion deal to take a 14.9% stake in KeyCorp, an American regional bank, as part of the new strategy. Investors that avoided Bank of Nova Scotia in the past due to the South American focus might warm up to the new plan.
Risks still remain for bank stocks. Falling interest rates should help troubled borrowers, but PCL could still go higher if the economy hits a rough patch and unemployment rises.
That being said, Bank of Nova Scotia remains very profitable; net income for fiscal Q3 was $1.9 billion. The bank also has a solid capital cushion to ride out any additional turbulence. Investors who buy BNS stock at the current price can get a 6% dividend yield.
Enbridge
Enbridge (TSX: ENB) is up 26% in the past year. The stock currently trades near $56.50, which isn’t too far off the 2022 high around $59.
Management shifted growth spending in recent years to focus more on exports, natural gas utilities, and renewable energy. The company now owns an oil export terminal in Texas, has a stake in the Woodfibre liquified natural gas (LNG) export facility being built in British Columbia, and recently completed its acquisition of three natural gas utilities in the United States.
Enbridge is also working on a $24 billion capital program to boost growth. Revenue and cash flow from the new assets should support steady dividend growth.
Investors who buy ENB stock at the current level can get a dividend yield of 6.5%. The stock has had a good run, so a near-term pullback wouldn’t be a surprise, but any weakness should be viewed as an opportunity to add to the position.
The bottom line on top RRSP stocks
Bank of Nova Scotia and Enbridge pay attractive dividends that should continue to grow. If you have some cash to put to work, these stocks deserve to be on your RRSP radar.
