Canadian seniors are searching for ways to get better returns on their savings to help offset the rising cost of living. One popular strategy to generate passive income involves owning top TSX dividend stocks that offer attractive yields and growing distributions.
When the stocks are held inside a self-directed Tax-Free Savings Account (TFSA), this income stream is tax-free and won’t put Old Age Security (OAS) pension payments at risk of a clawback.
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Enbridge
Enbridge (TSX: ENB) is a giant in the North American energy infrastructure and gas utilities sector. The company’s oil pipelines move about 30% of the oil produced in Canada and the United States. Its natural gas transmission network transports roughly 20% of the natural gas used by American homes and businesses. Enbridge owns the largest oil export terminal in Texas and is a partner on the Woodfibre liquified natural gas (LNG) export facility being built in British Columbia. In addition, Enbridge has a growing portfolio of solar and wind assets.
The company recently wrapped up the final leg of its US$14 billion purchase of three natural gas utilities in the United States. This makes Enbridge the largest operator of natural gas utilities in North America. Natural gas demand is expected to rise in the coming years as tech companies that are building artificial intelligence (AI) data centres look to install standalone gas-fired power production to ensure the facilities have reliable and scalable electricity supply.
Enbridge uses debt to fund part of its growth initiatives. Falling interest rates should help reduce borrowing costs for Enbridge in the next couple of years. The company has a $24 billion capital program on the go to drive additional revenue and cash flow expansion.
Enbridge raised the dividend in each of the past 29 years. Investors should see the trend extend as new assets are completed and go into service. At the time of writing, ENB stock provides a yield of 6.5%.
Bank of Nova Scotia
Bank of Nova Scotia (TSX: BNS) underperformed the other large Canadian banks over the past five years. This makes the stock a contrarian pick right now for investors. However, a new chief executive officer took charge of the bank last year and is already making changes to help deliver better shareholder returns.
Bank of Nova Scotia reduced its staff count by about 3% to trim expenses. The company is also shifting its growth investments away from South America to focus more on the United States, Canada, and Mexico.
Bank of Nova Scotia recently spent US$2.8 billion to take a 14.9% stake in KeyCorp, a U.S. regional bank. The move gives Bank of Nova Scotia a foothold with options to expand its presence in the American market. The bank is also eyeing growth opportunities in Quebec and has created a senior management position to drive that initiative.
Lower interest rates will help ease the pressure on businesses and households that are carrying too much debt. As long as the economy holds up, investors should see Bank of Nova Scotia’s provisions for credit losses (PCL) start to decline in the coming quarters.
BNS stock trades close to $72.50 at the time of writing. The share price is up about 29% in the past year, but still sits well below the $93 it reached in early 2022. Investors who buy BNS stock at the current level can get a dividend yield of 5.8%.
The bottom line on top stocks for passive income
Enbridge and Bank of Nova Scotia pay good dividends that should continue to grow. If you have some cash to put to work in a portfolio focused on passive income, these stocks deserve to be on your radar.
