With the cost of living increasing every year, Canadian seniors are searching for ways to get better returns on their savings. One popular strategy is to buy good TSX dividend stocks inside a self-directed Tax-Free Savings Account (TFSA).
The big surge in the TSX in 2024 means stocks are due for a pullback, especially if the economy slides into a slump next year. As such, it makes sense to look for dividend-growth stocks that should continue to raise their payouts, even if markets get a bit volatile.
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Bank of Nova Scotia
Bank of Nova Scotia (TSX: BNS) is up about 26% in 2024. The stock now trades just under $80 per share compared to $55 at one point last fall, but it is still below the $93 it reached in early 2022 before pulling back as interest rates rose in Canada and the United States.
Now that the Bank of Canada and the U.S. Federal Reserve are cutting interest rates, investors are feeling more comfortable with the stability of loan portfolios. Bank of Nova Scotia and its peers raised provisions for credit losses (PCL) over the past year as interest rates increased.
There are still risks that Canadian banks could see a wave of defaults as fixed-rate mortgages taken in 2020 and 2021 with record-low interest rates come due in the next two years. Rates on fixed-rate mortgages are determined by government bond yields rather than the target interest rate. In the past two months, bond yields rose based on expectations that the Bank of Canada and the U.S. Federal Reserve might have to pause rate cuts or even push rates up again in 2025 if inflation creeps back above 3%. In a scenario where rates remain high and unemployment jumps, the Canadian banks could face some headwinds.
That being said, the overall loan book remains very healthy, and Bank of Nova Scotia has a solid capital position to ride out some turbulence. Investors who buy BNS stock at the current level can get a dividend yield of 5.3%.
Fortis
Fortis (TSX: FTS) has a dividend yield of 3.9% at the current share price. This is lower than the yield investors can get on many other TSX dividend stocks, but the dividend growth is the reason investors should consider owning Fortis.
The board has increased the dividend for 51 consecutive years, with the most recent increase of 4.2%. Fortis intends to raise the dividend by 4-6% annually through at least 2029. That’s good guidance in an uncertain economic climate as Canada and the U.S. brace for challenging trade discussions starting next year.
Fortis owns 10 utilities spread out across Canada, the United States, and the Caribbean. The businesses generate nearly all of their revenue from rate-regulated assets. These include natural gas distribution utilities, electricity transmission networks, and power generation facilities. Homes and businesses need these services regardless of the state of the economy.
Fortis is working on a $26 billion capital program that will boost the rate base from roughly $39 billion in 2024 to $53 billion in 2029. As the new assets go into service, the added cash flow should support the planned dividend increases.
The bottom line on top stocks for passive income
Bank of Nova Scotia and Fortis pay attractive dividends that should continue to grow. If you have some cash to put to work in a portfolio targeting passive income, these stocks deserve to be on your radar.
