The market correction over the past year in some top TSX dividend stocks is giving investors who missed the bounce off the 2020 crash a chance to secure attractive yields and potentially generate meaningful total returns on the next recovery.
BCE
BCE (TSX:BCE) has done a good job of changing with the evolution of the communications sector. In the past, BCE generated reliable and growing revenue from its landline telephone services. Today, customers pay for mobile, internet, TV, and security services that are often bundled in sticky packages.
BCE has also expanded its reach into the media and sports segments. The company owns a television network, specialty channels, radio stations, online platforms, and interests in pro sports teams.
When all the assets are combined, you get a powerful business that has the ability to interact with most Canadians on a weekly, if not daily, basis. In fact, each time a person sends a text, makes a call, listens to the news, watches a game, streams a movie, or checks their e-mail, there is a good chance that one of BCE’s assets is involved at some point along the way.
The sharp rise in interest rates over the past year is making borrowing more expensive, and this will impact BCE’s earnings in 2023. In addition, advertisers are trimming marketing budgets or shifting spending away from TV and radio to digital options. This is putting pressure on the media revenues, and BCE is restructuring the group to adjust.
The overall business, however, remains in solid shape. BCE expects total revenue and free cash flow to increase in 2023 compared to last year.
BCE’s share price is down considerably over the past few months. At this point, the drop looks exaggerated, and investors can get a 6.75% yield on the stock. BCE increased the payout by at least 5% annually over the past 15 years.
Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS) increased its quarterly dividend by 2.9% to $1.06 per share when the company released the fiscal second-quarter (Q2) 2023 earnings results. The board’s decision to hike the payout at a time when banks are setting aside more cash to cover potential loan losses is a signal to investors that the management team is comfortable with the overall risk profile of the loan book.
Bank of Nova Scotia finished fiscal Q2 with a common equity tier-one (CET1) ratio of 12.3%. The number reflects the bank’s capital position and indicates its ability to ride out tough times. Canadian regulators are increasing the minimum CET1 ratio to 11.5% for the country’s banks, so Bank of Nova Scotia is already sitting on excess cash.
Economists broadly expect a short and mild recession to occur as a result of the Bank of Canada’s rate hikes that are designed to get inflation under control. Assuming that turns out to be the case, BNS stock is probably oversold right now.
Investors who buy the stock at the current price near $66 can get a 6.4% dividend yield. Bank of Nova Scotia traded above $90 in early 2022, so there is good upside potential on the next rebound.
The bottom line on top high-yield dividend stocks
BCE and Bank of Nova Scotia are good examples of top TSX dividend stocks with high yields and growing distributions. If you have some cash to put to work, these stocks deserve to be on your radar.
