The market correction is giving Canadian investors a chance to buy top TSX dividend stocks at discounted prices for their self-directed Registered Retirement Savings Plan (RRSP) portfolios.
Buying good dividend stocks on dips is a contrarian move. Cheap stocks can go lower, but the long-term benefit for a portfolio can be substantial due to the higher yield realized on the initial investment and the potential for capital gains.
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Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS) just reported fiscal third-quarter (Q3) 2023 results. Canada’s fourth-largest bank by market capitalization generated adjusted net income of $2.23 billion, or $1.73 per share, compared to $2.10 per share in the same period last year. Adjusted return on equity (ROE) came in at 12.2%, compared to 15.4% in fiscal Q3 2022.
Bank of Nova Scotia focused on boosting its capital reserves over the past year. The bank’s common equity tier-one (CET1) ratio is now 12.7% compared to 11.4% in the same quarter last year. This is a measure of the bank’s ability to ride out difficult times. Canadian banks are required to have a CET1 ratio of at least 11.5% by the end of this year, so Bank of Nova Scotia is sitting on excess capital.
The bank’s provision for credit losses (PCL) was $819 million in the latest quarter compared to $412 million in fiscal Q3 2022. The increase highlights the impact of steep interest rate increases by the Bank of Canada over the past year, as the central bank tries to get inflation under control. Commercial and residential borrowers with too much debt could default once they burn through savings. All of the large Canadian banks are increasing their PCL, and investors could see the trend continue over the coming quarters.
On the positive side, Bank of Nova Scotia remains very profitable and has a strong capital position. The board increased the dividend earlier this year when the fiscal Q2 2023 results came out, so management can’t be too concerned about the earnings outlook.
Bank of Nova Scotia trades near $63 per share at the time of writing compared to more than $90 in early 2022.
The pullback appears overdone, even as the bank sector faces some headwinds. Investors who buy BNS stock at the current price can get a 6.7% dividend yield.
Enbridge
Enbridge (TSX:ENB) is another good stock to buy if you are searching for a high dividend yield on a discounted stock that should continue to deliver distribution growth. The energy infrastructure giant gets revenue from a diversified portfolio of assets that includes oil pipelines, natural gas pipelines, oil export facilities, natural gas utilities, and renewable energy assets.
Enbridge is also a partner in a new liquified natural gas (LNG) export terminal being built in British Columbia and could become a key player in the Canadian carbon-capture and hydrogen markets.
Enbridge trades near $47 per share at the time of writing compared to more than $59 at the peak last year. The pullback is probably exaggerated at this point. Enbridge expects to deliver decent growth in earnings before interest, taxes, depreciation, and amortization (EBITDA) in 2023.
Investors who buy ENB stock at the current level can get a 7.5% dividend yield. Enbridge increased the dividend in each of the past 28 years, so the payout should be safe.
The bottom line on top RRSP stocks
Ongoing volatility should be expected, but Bank of Nova Scotia and Enbridge already look cheap and pay attractive dividends that should continue to grow. If you have some cash to put to work in a self-directed RRSP, these stocks deserve to be on your radar.
