Investors who missed the rally in the TSX this year are wondering which top dividend stocks are still attractive and good to buy for a self-directed Registered Retirement Savings Plan (RRSP) portfolio focused on dividend yield and total returns.
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Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS) underperformed several of its Canadian peers in recent years. The stock currently trades for close to $72 per share at the time of writing. It was as high as $93 in early 2022.
CIBC and Royal Bank, on the other hand, are near or at record levels. BMO and TD, even with their recent difficulties, have still outperformed BNS stock over the past five years.
Looking ahead, this could change. Bank of Nova Scotia’s new CEO is shifting capital away from South America where the bank previously focused on growth, and is investing in opportunities in the United States, Canada, and Mexico. The transition could take time to deliver meaningful results, but investors who buy BNS stock at the current level get paid a solid 5.9% dividend yield to wait for the recovery.
Telus
Telus (TSX:T) is another dividend stock that has not contributed much to the surge in the TSX to new record highs. Telus took a beating over the past two years as rising interest rates drove up borrowing expenses. Telus uses debt to fund its capital programs, which include the expansion and upgrade of wireless and wireline networks. Higher debt expenses tend to cut into profits and can reduce cash that is available for dividends.
At the same time, Telus has been caught up in mobile and internet price wars over the past year. Challenges in its Telus Digital (TSX:TIXT) subsidiary, along with ongoing regulatory uncertainty, have contributed to the pain. Telus stock trades close to $22 per share at the time of writing. That’s only about 10% above the 12-month low and way off the $34 the stock hit in 2022.
Despite the headwinds, Telus still expects to deliver a jump in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in 2024 compared to last year. As such, the dividend should be safe heading into 2025 and the stock is probably undervalued. Investors who buy Telus at the current level can get a dividend yield of 7%.
Fortis
Fortis (TSX:FTS) is a more conservative pick. The stock has rebounded nicely in the past four months as bargain hunters returned to utility stocks that pulled back while interest rates rose. Now that the Bank of Canada and the U.S. Federal Reserve have started reducing interest rates, utility stocks are getting a break on debt expenses and could start to approve more growth projects.
Fortis already has a $25 billion capital program on the go that will raise the rate base considerably through 2028. As new assets are put into service the resulting increase to cash flow should support planned dividend increases of 4% to 6% per year. Fortis raised the dividend in each of the past 50 years.
The bottom line on RRSP investing
Bank of Nova Scotia, Telus, and Fortis pay attractive dividends that should continue to grow. If you have some cash to put to work in a self-directed RRSP, these stocks deserve to be on your radar.
