The pullback in the share prices of top TSX dividend stocks in recent months is giving investors who missed the rally after the 2020 crash another chance to buy great Canadian dividend stocks for their self-directed Registered Retirement Savings Plan (RRSP) portfolios focused on total returns.
Emera
Emera (TSX:EMA) is a utility company with $38 billion in assets located in Canada, the United States, and the Caribbean. The businesses are largely focused on electricity generation and natural gas and electricity distribution.
Adjusted net income for the first half of 2023 came in at $430 million or $1.58 per share compared to $398 million, or $1.51 per share, for the same period last year.
Emera has a $2.8 billion capital program for 2023 that is part of a multi-year investment initiative of $8 billion to $9 billion. As new assets go into service, the rate base is expected to increase enough to support steady dividend hikes over the medium term.
The regulated assets deliver reliable and predictable cash flow. Homes and businesses need electricity and natural gas, regardless of the state of the economy, so Emera should be a good stock to own during a recession.
The share price is close to $49 at the time of writing compared to $59 in May.
Investors who buy EMA stock at the current level can get a 5.6% dividend yield.
Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS) raised the dividend when the bank reported fiscal second-quarter (Q2) 2023 results. That should be a signal to investors that the management team is comfortable with the profit outlook, even as the banking sector faces some headwinds.
Loan growth could slow in the coming year as soaring interest rates make it harder for people to buy houses or borrow against the equity in their homes to fund other expenditures. Businesses might also borrow less for expansion projects or acquisitions.
Bank of Nova Scotia is increasing its provision for credit losses (PCL), as customers with too much total debt get caught out by the higher rates. All of the major banks will likely see defaults rise in the coming quarters.
If the economy goes into a deep and prolonged recession, there is a risk that bankruptcies and loan defaults could soar. In the housing market, a plunge in home prices could saddle banks with properties that are worth less than the money owed. In that scenario, the banks would be in for a rough ride.
For the moment, economists broadly expect a short and mild recession as a result of the Bank of Canada’s efforts to slow the economy to get inflation under control. Assuming things work out that way, Bank of Nova Scotia is likely oversold today.
The bank remains very profitable and has a good capital cushion to ride out some tough times. The dividend should be safe, and investors can now get a 6.8% yield from BNS stock. The share price is currently near $62 compared to $93 in early 2022, so there is decent upside potential on a rebound.
The bottom line on cheap dividend stocks
Ongoing volatility should be expected, and these stocks could go even lower in the near term. That being said, Emera and Bank of Nova Scotia already appear oversold and pay attractive dividends that should continue to grow. If you have some cash to put to work, EMA and BNS deserve to be on your radar.
