The steep rise in interest rates over the past year has led to a pullback in the share prices of many top Canadian dividend stocks. Contrarian investors now have an opportunity to buy great TSX dividend-growth stocks at discounted prices to get attractive yields and position their Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolios to benefit when the tide turns.
Telus
Telus (TSX:T) trades for close to $22 per share at the time of writing compared to more than $34 at the high point in 2022.
The company announced plans to cut 6,000 jobs this year to reduce expenses and adjust to challenges being faced by its Telus International subsidiary. Telus spun off the division through an initial public offering in early 2021. Telus International provides IT and multi-lingual call centre services to global clients. The firm has seen a decline in revenue this year due to global macroeconomic pressures. This forced Telus to lower its overall guidance for 2023.
The news was a surprise, but to put things into perspective, the segment that includes Telus International only accounted for 10% of total adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in the first quarter (Q1) of 2023.
Telus still expects to deliver consolidated operating revenue growth of 9.5% to 11.5% this year compared to the previous guidance of 11% to 14%. The core mobile and internet subscription businesses continue to perform well, even in these challenging economic conditions.
Telus has increased the dividend annually for more than two decades. Investors who buy the stock at the current level can get a 6.6% dividend yield.
Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS) trades near $55.50 per share at the time of writing compared to $93 in early 2022. The extent of the pullback might be overdone, considering the profitability of the bank and the size of its capital cushion.
Bank of Nova Scotia generated fiscal Q3 2023 net income of $2.21 billion compared to $2.59 billion in the same quarter last year. The bulk of the difference is due to an increase in Bank of Nova Scotia’s provision for credit losses (PCL). This is money the bank sets aside for potential loan defaults. The PCL number rose from $412 million in fiscal Q3 2022 to $819 million in fiscal Q3 2023. That sounds like a big number, and it is certainly going in the wrong direction, but it remains very small relative to the size of the total loan book.
Management has done a good job of bulking up the capital position. Bank of Nova Scotia finished fiscal Q3 with a common equity tier-one (CET1) ratio of 12.7%. This is well above the 11.5% required by the government organization that oversees the Canadian banks.
Bank of Nova Scotia raised the dividend earlier this year. Investors who buy BNS stock at the current level can get a 7.6% dividend yield.
The Bank of Canada might be done raising interest rates, and some economists expect the central bank to actually start cutting rates as early as Q1 2024. If that turns out to be the case and the economy delivers a soft landing as inflation subsides, the drop in Bank of Nova Scotia’s share price looks exaggerated today.
The bottom line on top oversold dividend stocks
Telus 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 right now and deserve to be on your radar.
