Canadian seniors are searching for ways to get better returns on their hard-earned savings. With Guaranteed Investment Certificates (GICs) paying much lower rates compared to this time last year, retirees are looking to dividend stocks again as a source of passive income.
The rally in the TSX in 2024 has made it harder to find undervalued dividend stocks, but investors can still find some with high yields that are trading at reasonable prices.
Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS) is up about 30% in the past 12 months to $78 per share at the time of writing. The stock, however, still trades well off the $93 it fetched in early 2022.
Cuts to interest rates by the Bank of Canada and the U.S. Federal Reserve have provided support for most bank stocks in recent months. Falling borrowing costs will help ease the pressure on businesses and households that are facing a jump in interest expenses that have occurred as a result of the sharp rise in interest rates in 2022 and 2023.
Reduced debt expenses should lead to lower provisions for credit losses (PCL) at Bank of Nova Scotia in the coming quarters. The bank increased its PCL considerably to cover potential loan defaults as more customers struggled to pay their debts. Lower PCL would improve profits.
Bank of Nova Scotia has a new chief executive officer (CEO) who is shifting the growth strategy away from South America to focus more on the United States and Canada. In 2024, Bank of Nova Scotia announced a US$2.8 billion deal to take a 14.9% stake in KeyCorp, a U.S. regional bank. The company also created a new executive role to drive expansion in Quebec, where the bank sees good growth potential.
Investors who buy BNS stock at the current level can get a dividend yield of 5.4%.
Enbridge
Enbridge (TSX:ENB) trades near $60 per share. The stock recently hit a multi-year high and is up 24% in 2024. Despite the big rebound, investors can still get a 6% dividend yield from ENB stock and can look forward to steady dividend growth.
Interest rate moves over the past two years are largely responsible for the pullback and subsequent recovery of Enbridge’s share price. The energy infrastructure giant uses debt to fund part of its growth program, which includes acquisitions and development projects. A sharp rise in borrowing costs in 2022 and 2023 caused some worries that Enbridge might have to trim its generous dividend. This led to the stock’s decline from $59 to $44. As soon as sentiment shifted from fears of more interest rate hikes late last year to expectations of rate cuts in 2024, ENB stock started to recover.
Enbridge is working on a $24 billion capital program and recently wrapped up its US$14 billion acquisition of three natural gas utilities in the United States. The new assets will boost revenue and cash flow to help support ongoing dividend increases. Enbridge has given investors a raise in each of the past 29 years.
The bottom line on high-yield TSX dividend stocks
Bank of Nova Scotia and Enbridge are good examples of TSX stocks that pay attractive dividends and should continue to grow. If you have some cash to put to work, these stocks deserve to be on your radar.
