The pullback in the share prices of some of Canada’s best dividend stocks is giving investors seeking high yields for passive income and total returns a chance to buy great TSX dividend stocks at discounted prices for their self-directed Tax-Free Savings Account (TFSA) and Registered Retirement Savings Plan (RRSP) portfolios.
Enbridge
Enbridge (TSX:ENB) is a leading player in the North American energy infrastructure sector with vast networks of oil and natural gas pipelines that move 30% of the oil produced in the U.S. and Canada and 20% of the natural gas used in the United States. Renewable energy assets, export facilities, and natural gas utilities round out the asset portfolio.
Enbridge trades near $48 per share at the time of writing. The stock was as high as $59 in 2022.
Investors who buy ENB stock at the current level can get a 7.4% dividend yield and wait for ongoing dividend increases to boost the return on the investment. Enbridge increased the distribution in each of the past 28 years.
The $17 billion capital program and any new acquisitions should deliver revenue and cash flow growth over the medium term. Fuel demand in domestic and international markets is expected to be robust in the next few years as airlines ramp up capacity, commuters head back to offices, and utilities around the world transition to natural gas from coal for producing electricity, as they build out their renewable networks.
Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS) reported decent fiscal Q3 2023 results. The share price is up a bit as a result, but BNS stock still looks oversold. At the time of writing, investors can buy Bank of Nova Scotia stock near $65.50. That’s still down from $74 in February and more than $90 at the 2022 high.
The board increased the dividend earlier this year, so the management team can’t be too concerned about the earnings outlook, even as higher interest rates drive up the risk of loan defaults by customers who are carrying too much debt. Bank of Nova Scotia is already increasing its provision for credit losses, but the overall loan book remains in good shape.
Economists broadly expect the Bank of Canada to push the economy into a mild recession to get inflation back down to the 2% target. In that scenario, Bank of Nova Scotia stock appears oversold right now.
If interest rates continue to rise and stay elevated for too long, there is a risk that the economy could go through a more severe downturn. This would lead to a jump in job losses that could set off a wave of loan defaults. Canadian banks would then take a bigger hit, and share prices could slide further. That being said, Bank of Nova Scotia has a large capital cushion to get it through some difficult times, so the dividend should be safe, even if things get ugly.
Investors who buy BNS stock at the current level can get a 6.5% yield. You get paid well to ride out any additional turbulence and have a shot at decent capital gains on the next rebound.
The bottom line on top high-yield stocks
Enbridge and Bank of Nova Scotia pay attractive dividends that should continue to grow. If you have some cash to put to work, these stocks look cheap today and deserve to be on your radar.
