Income investors are wondering which dividend stocks on the TSX are potentially undervalued right now and good to buy for a self-directed Tax-Free Savings Account (TFSA) focused on income and long-term total returns.
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Bank of Nova Scotia
Bank of Nova Scotia (TSX: BNS) is arguably a contrarian pick in the Canadian bank sector today. The stock has underperformed its large peers in recent years, but the new management team is shifting the growth strategy with the goal of delivering better returns for shareholders.
The bank plans to focus more on opportunities in the United States and Canada and less on Latin America, where Bank of Nova Scotia previously spent billions of dollars to acquire and build a presence in several countries, including Colombia, Mexico, Peru, and Chile. The bank recently sold its assets in Colombia, Panama, and Costa Rica. Mexico might remain strategically important, depending on how U.S. trade negotiations evolve, while holdings in the other markets could potentially be monetized to fund growth elsewhere.
Bank of Nova Scotia spent US$2.8 billion in 2024 to acquire a 14.9% stake in KeyCorp, an American regional bank. The deal gives Bank of Nova Scotia a platform to expand its presence in the U.S. market.
In Canada, the bank created a new executive position last year to oversee expansion in Quebec. Bank of Nova Scotia has also identified British Columbia as a potential growth market for the business.
Bank of Nova Scotia’s share price is down about 17% in 2025. The stock has given back most of the gains it racked up in the final months of last year. Investors who buy at the current level can get a dividend yield of 6.6%.
It will take time for the new strategy to deliver results, but investors get paid well to wait.
TC Energy
TC Energy (TSX: TRP) trades near $66 at the time of writing. It was above $70 last month and is up about 33% in the past year.
Falling interest rates helped spark a rebound in pipeline stocks in 2024. TC Energy and its peers use debt to fund part of their large capital programs. The surge in borrowing costs that occurred in 2022 and 2023 drove up debt expenses on variable-rate loans and made it more expensive to secure new financing. Higher debt costs can eat into profits and reduce cash that is available for distribution to shareholders. Cuts to interest rates last year provided a new tailwind for TC Energy’s share price.
The company also received a boost by completing its 670km Coastal GasLink pipeline that will move natural gas to the new LNG Canada export facility. Full commercial operation is expected to begin this year. In addition, TC Energy recently completed a large natural gas pipeline in Mexico that is scheduled to start generating revenue in 2025. These projects, along with the ongoing near-term capital program of roughly $6 billion per year, should drive cash flow growth to support dividend increases.
TC Energy currently provides a dividend yield of 5.1%.
The bottom line on top stocks for TFSA passive income
Near-term volatility is expected, but Bank of Nova Scotia and TC Energy pay solid dividends that should continue to grow. If you have some TFSA cash to put to work, these stocks deserve to be on your radar.
