Contrarian investors are looking for undervalued stocks to add to their self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolios focused on dividends and total returns.
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Bank of Nova Scotia
Bank of Nova Scotia (TSX: BNS) trades near $69 per share compared to $80 near the end of November. It was as high as $93 in early 2022 at the top of the post-pandemic rebound.
The stock has underperformed its large Canadian peers in recent years. This is likely due to the international business that is heavily focused on Latin America. Bank of Nova Scotia invested billions of dollars on acquisitions in Mexico, Colombia, Peru, and Chile, as well as in other countries, over the past 20-30 years in a bet on middle-class growth among a population relatively untapped for banking services. Economic and political volatility in these markets, however, has resulted in Bank of Nova Scotia’s shareholders not seeing the same returns that have occurred at the other large Canadian banks that focused investment on other markets, including the United States.
Bank of Nova Scotia’s new CEO has started to make changes. The bank spent US$2.8 billion in 2024 to buy a 14.9% stake in KeyCorp, a U.S. regional bank. This gives Bank of Nova Scotia a platform to expand its presence in the American market. Earlier this year, Bank of Nova Scotia sold its operations in Colombia, Costa Rica, and Panama. This is potentially the beginning of a much larger unwind in the region.
It will take time to deliver results, but investors get paid a solid 6.1% dividend yield at the current share price to wait for the recovery.
Canadian National Railway
Canadian National Railway (TSX: CNR) trades near $135.50 at the time of writing compared to $180 at one point last year. The decline in the share price gives investors a chance to pick up one of Canada’s best dividend-growth stocks at a meaningful discount.
Labour strikes at both CN and Canadian ports disrupted operations last year. Wildfires also delayed shipments along the rail network. These interruptions led to lower-than-expected volumes for the year as some customers pivoted their shipments to alternative routes, including through the United States. Efficiency dropped, and costs rose. As a result, CN reported a modest drop in earnings last year compared to 2023.
Investors should brace for a rocky ride in 2025, as well, if trade negotiations between Canada and the U.S. go off the rails. That being said, the stock price likely reflects a good chunk of the risk right now, and things could turn out better than anticipated.
In the first-quarter 2025 earnings report, CN maintained its 2025 guidance for 10% to 15% growth in adjusted diluted earnings per share. Earlier in the year, the board raised the dividend by 5%, and CN plans to buy back up to 20 million shares over 12 months.
Investors who buy CNR stock at the current price can get a dividend yield of 2.6%.
The bottom line on cheap TSX stocks
Bank of Nova Scotia and CN are examples of solid Canadian companies that currently trade at discounted prices. If you have some cash to put to work, these stocks deserve to be on your radar.
