2 Bargain TSX Stocks to Buy While They Are Still Cheap

These stocks look cheap and pay attractive dividends.

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The TSX is near a record high after the big surge last year. Investors who missed the rally are wondering which Canadian stocks still might be undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) focused on dividends and total returns.

Bank of Nova Scotia

Bank of Nova Scotia (TSX:BNS) is up about 20% in the past 12 months, but the stock still sits well below the high it reached in early 2022 and has underperformed its large Canadian peers over the past five years.

Looking ahead, that might change. Bank of Nova Scotia is working on a turnaround plan under its new chief executive officer, who took charge in 2023. The bank cut staff by about 3% to reduce expenses amid a shift to make the bank more efficient. Bank of Nova Scotia is also switching its growth investments away from Latin America to the United States and Canada.

The previous international strategy of spending billions of dollars on acquisitions in the Pacific Alliance countries, including Mexico, Peru, Colombia, and Chile, focused on tapping growth potential in these emerging markets. Expansion of the middle class normally leads to increased demand for loans and investment products, so the long-term case for being in these markets is probably solid, but economic and political uncertainty are constantly present, and Bank of Nova Scotia’s shareholders have not enjoyed the anticipated returns.

Bank of Nova Scotia launched its U.S. expansion last year with a US$2.8 billion deal to acquire a 14.9% stake in an American regional bank. The deal gives Bank of Nova Scotia a platform to grow in the American market. At home, Bank of Nova Scotia created a new executive position to oversee expansion in Quebec, where the bank sees opportunity.

At the same time, Bank of Nova Scotia has begun the process of unloading assets in Latin America. The bank recently announced a deal to sell its businesses in Colombia, Costa Rica, and Panama. Investors didn’t like the $1.4 billion charge the bank is taking on the sale, and the stock has been down since the news came out. Markets might be wondering if additional monetization of Latin American assets is on the way, and if so, will it be at a profit or a loss.

Shareholders will need to be patient during the transition, but Bank of Nova Scotia remains very profitable and currently offers a dividend yield of 5.7%.

Telus

Telus (TSX:T) took a beating over the past two years, falling from $34 in 2022 to as low as $19 in recent weeks. Rising interest rates in 2022 and 2023 triggered the first leg of the pullback. Telus uses debt to fund part of its capital program, which includes spending billions of dollars on network expansion and upgrades. The jump in interest expenses cuts into profits and can reduce the cash that is available for dividends or debt reduction.

On the operational side, Telus has faced heavy competition in the mobile sector amid extended price wars. In addition, its subsidiary, Telus Digital, saw a meaningful drop in revenue. This led Telus to reduce guidance in 2023 and 2024.

Despite the headwinds, the company still delivered solid results through the first three quarters of last year, and the board raised the dividend for 2025. Price wars could ease this year, and Telus Digital appears to be stabilizing. Near-term regulatory uncertainty could cause additional turbulence, but contrarian investors might consider a position while the stock is out of favour. At the current share price, investors can get a dividend yield of 8% from Telus.

The bottom line on top TSX dividend stocks

Bank of Nova Scotia and Telus are good examples of TSX stocks that look cheap right now and pay attractive dividends. If you have some cash to put to work in a contrarian portfolio, these stocks deserve to be on your radar.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

The Motley Fool recommends Bank Of Nova Scotia, TELUS, and Telus Digital. The Motley Fool has a disclosure policy. Fool contributor Andrew Walker has no position in any stock mentioned.

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