Canadians have another $7,000 in Tax-Free Savings Account (TFSA) contribution space in 2025. One popular TFSA investing strategy involves buying top TSX stocks that pay reliable dividends.
Retirees like to own dividend stocks to generate a tax-free passive income that can complement company pensions, Canada Pension Plan, and Old Age Security. Younger investors might decide to reinvest the dividends into new shares to take advantage of the power of compounding.
In the current market conditions, it makes sense to search for top dividend stocks with long track records of paying stable and growing distributions.
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Bank of Nova Scotia
Bank of Nova Scotia (TSX: BNS) is a contrarian pick in the Canadian bank sector. The stock has underperformed the other large Canadian banks in recent years, largely due to its big international bets on Latin America that focused heavily on members of the Pacific Alliance trade bloc, including Mexico, Peru, Colombia, and Chile.
The four countries have a combined population of more than 230 million with low bank services penetration. As the middle class grows, there should be an increase in demand for loans and investment products. As such, the long-term opportunity looks good. Unfortunately, Bank of Nova Scotia’s shareholders have not benefitted. The emerging markets come with economic and political uncertainty that can upset growth plans.
Bank of Nova Scotia is in the middle of a transition that could deliver better results in the coming years. The new chief executive officer who took control in 2023 is shifting the growth focus to the United States and parts of Canada. In 2024, the bank spent US$2.8 billion to acquire a 14.9% stake in KeyCorp, a regional bank in the United States. The deal gives Bank of Nova Scotia a foothold to expand in the American market.
At the same time, Bank of Nova Scotia is selling some of its Latin American businesses. The bank recently announced the sale of its operations in Colombia, Costa Rica, and Panama. Monetization of other assets could follow in the next few years, with the funds redirected to other opportunities.
Investors will need to be patient, but Bank of Nova Scotia remains very profitable and pays a good dividend. At the time of writing, BNS stock provides a yield of 5.7%.
TC Energy
TC Energy (TSX: TRP) has increased its dividend annually for more than two decades. The stock enjoyed a nice rebound in the past 12 months to the current price of $68 after sliding from $74 in 2022 to as low as $45 in 2023.
TC Energy finally completed its Coastal GasLink project in late 2023. The budget more than doubled to about $14.5 billion. This 670km natural gas pipeline is expected to go into commercial service this year and will move natural gas from Canadian producers to a new liquified natural gas (LNG) export terminal being built in British Columbia.
Management has done a good job of monetizing non-core assets to reduce debt and shore up the balance sheet. As such, TC Energy is positioned to continue its capital program. As news assets are completed and go into service, the company should generate enough extra cash flow to support ongoing dividend increases.
At the current share price, TRP stock provides a dividend yield of 4.8%.
The bottom line on TSX dividend stocks
Bank of Nova Scotia and TC Energy pay good dividends that should continue to grow. If you have some cash to put to work, these stocks deserve to be on your radar.
