The Tax-Free Savings Account (TFSA) limit is $6,500 in 2023 and will be $7,000 in 2024. Investors with this year’s contribution space still available have a great opportunity to buy top TSX dividend stocks at discounted prices for portfolios focused on tax-free passive income and attractive total returns.
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BCE
BCE (TSX:BCE) trades near $53.50 at the time of writing compared to $65 earlier this year.
Rising interest rates are to blame for most of the decline, rather than issues with the company’s business. The Bank of Canada increased interest rates considerably over the past 18 months in an effort to get inflation under control by cooling off the economy. BCE uses debt to fund part of its capital program, so higher borrowing costs can reduce earnings. In fact, BCE expects adjusted earnings per share to dip by 3% to 7% this year.
BCE is also seeing some revenue weakness in the media group. Advertisers are spending less on TV and radio promotions. BCE’s digital ad sales are improving, but it isn’t enough to offset the TV and radio slump.
The overall business, however, continues to perform well, supported by the core mobile and internet subscription operations. BCE just reported solid third-quarter (Q3) 2023 results and maintained its 2023 guidance. Revenue and free cash flow are expected to be higher than in 2022. This should support the dividend heading into 2024.
BCE increased the dividend by at least 5% in each of the past 15 years. At the current share price, investors can get a 7.2% dividend yield.
Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS) trades at just 9.3 times trailing 12-month earnings. This is a multiple you would expect to see during a significant economic decline. Investors appear to be concerned that the steep rate hikes by the Bank of Canada will ultimately trigger a deep recession.
That might turn out to be the case. Rate increases take time to fully impact the economy, and it is possible that the central bank has been too aggressive and will keep rates elevated too long in its effort to cool down the economy enough to get inflation back to the 2% target. That being said, economists widely expect the economy to go through a short and mild recession. Assuming they are correct, Bank of Nova Scotia is likely oversold today.
The bank remains very profitable and has a solid capital cushion to ride out economic turbulence, so the dividend should be safe. Investors will soon find out if the new chief executive officer is going to make sweeping strategic changes to the business after completing a review of the domestic and international operations.
At the current share price near $59, investors can get a 7.2% dividend yield from BNS stock and simply wait for the next recovery in the bank sector.
TC Energy
TC Energy (TSX:TRP) recently completed construction of its 670 km Coastal GasLink pipeline at an estimated cost of about $14.5 billion. That’s more than double the initial budget, which is one reason the share price is down from $74 in June 2022 to the current price of around $49.50.
Management is making good progress on shoring up the balance sheet by selling stakes in non-core assets. The company is also planning to spin off the oil pipelines business to raise additional cash to help fund the rest of the capital program that is expected to be $6 billion to $7 billion per year beyond 2024.
TC Energy expects the new assets to drive revenue and cash flow expansion that will support planned annual dividend increases of 3-5%.
Investors who buy TRP stock at the current level can get a 7.5% dividend yield.
The bottom line on top TFSA dividend stocks
BCE, Bank of Nova Scotia, and TC Energy pay attractive dividends that should continue to grow. If you have some cash to put to work in a TFSA, these stocks look cheap today and deserve to be on your radar.
