Falling rates offered on Guaranteed Investment Certificates (GICs) are driving income investors back to TSX dividend stocks. Investors who missed the rally this year are wondering which Canadian dividend stocks still trade at discounted prices and offer high yields for a self-directed Tax-Free Savings Account (TFSA) focused on passive income.
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Bank of Nova Scotia
Bank of Nova Scotia (TSX: BNS) pays a 5.8% dividend yield at the time of writing. The share price of Canada’s fourth-largest bank by market capitalization has underperformed its peers over the past five years, leading to the lower earnings multiple investors are willing to pay. BNS stock trades near $73.40 at the time of writing compared to as high as $93 in early 2022.
Sentiment might change in the next few years. Bank of Nova Scotia is working on a turnaround plan under the new chief executive officer (CEO) who took control last year. The bank cut staff by about 3% and is shifting the growth focus away from South America to the United States, Canada, and Mexico.
Bank of Nova Scotia invested US$2.8 billion this year to take a 14.9% position in KeyCorp, a U.S. regional bank. In Canada, the bank is looking to boost its presence in Quebec, recently announcing the creation of a new executive position to drive the strategy in the province.
The South American operations delivered a solid quarter in the fiscal third quarter (Q3) of 2024, despite reductions in capital flowing to the businesses. At some point, Bank of Nova Scotia might decide to sell its businesses in Colombia, Peru, or Chile and could use the proceeds to ramp up the expansion in the U.S. market.
Telus
Telus (TSX: T) raised the dividend by 7% in 2024. This was the 26th increase in the past 14 years. Investors, however, haven’t been overly impressed with the company. Telus stock trades just above $22 at the time of writing compared to $34 at the peak in 2022.
Rising interest rates in 2022 and 2023 drove up borrowing costs for Telus. The jump in debt expenses dented earnings and reduced cash that is available to reduce debt or pay out to shareholders. Recent rate cuts by the Bank of Canada will provide relief on that front heading into 2025. In addition, Telus streamlined its operations over the past year, trimming staff by about 6,000 positions. The lower operating expenses will help Telus hit its financial targets in a challenging environment.
Price wars and regulatory uncertainty in Canada, along with revenue declines at Telus Digital, the international subsidiary, have also contributed to the pain. Near-term headwinds should be expected, but the stock is probably oversold at this level. Telus still expects to deliver growth in adjusted earnings before interest, taxes, depreciation, and amortization in 2024 compared to last year.
The bottom line on TSX stocks for passive income
Bank of Nova Scotia and Telus are arguably contrarian picks right now. However, the dividend yields are attractive, and the distributions should continue to grow. If you have some cash to put to work in a self-directed TFSA focused on passive income, these stocks still look cheap and deserve to be on your radar.
