Self-directed investors with some cash to put to work in their Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) are wondering which top TSX dividend stocks are still undervalued and could surge next year.
Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS) is holding its investor day on December 13. This type of bank event rarely brings any surprises, but the 2023 version at Scotiabank could be different and is eagerly awaited by the market. The new chief executive officer (CEO) who took control in early 2023 has already replaced several senior executives with new people and the team spent much of the year going through a strategic review of the bank’s operations to see what parts should remain core to the growth strategy and which ones should be sold off or closed.
Pundits speculate the bank could decide to exit Peru, Chile, or Colombia, where the bank has built up operations through acquisitions as part of an international focus on opportunities in these emerging markets. The three countries, along with Mexico, form the core of the Pacific Alliance trade bloc that enables the free movement of goods, labour, and capital. The combined population of the four countries is more than 230 million, with relatively low bank services penetration. As the middle class expands, there is good growth potential.
Mexico is also a part of Scotiabank’s international asset mix but is expected to remain strategically important for the bank. If Bank of Nova Scotia decides to sell some of its international businesses, the funds could be used to acquire growth opportunities in other markets. Bank of Nova Scotia’s larger Canadian peers have focused on the United States in recent years, and their share prices have outperformed BNS’s price.
The next few days will provide more clarity on the new strategy. In the meantime, contrarian investors might want to add some BNS stock to their portfolios while it remains out of favour. The bank trades near $60 per share at the time of writing compared to more than $90 at the high point in early 2022.
Investors who buy at the current level can get a 7% dividend yield, so you get paid well to ride out some turbulence. Bank stocks in general could have a strong year in 2024 if interest rates start to fall and the economy only suffers a short and mild recession, as is widely anticipated by economists.
Enbridge
Enbridge (TSX:ENB) just increased its dividend by 3.1% for 2024. This is the 29th consecutive annual dividend hike from the energy infrastructure giant. Enbridge has a current market capitalization of nearly $100 billion and continues to make acquisitions to drive growth.
The latest move is a US$14 billion purchase of three natural gas utilities in the United States. The assets, when combined with the current Canadian gas distribution operations, will make Enbridge the largest natural gas utility player in North America. This helps diversify the revenue stream to complement the core oil pipelines and natural gas transmission networks. Enbridge is also betting on growth in oil and gas exports and is beefing up its renewable energy business.
The third-quarter 2023 results were largely in line with the same period last year, despite the challenging environment caused by soaring interest rates. Enbridge expects the new acquisitions and the $25 billion secured capital program to help drive revenue and cash flow expansion in the coming years. This should continue to support the generous dividend.
At the time of writing, Enbridge stock trades for close to $47 compared to as high as $59 last year. Investors who buy the dip can get a 7.7% yield today.
The bottom line on top stocks to own heading into 2024
Additional volatility should be expected, and a shift back to the 12-month lows is certainly possible if interest rates continue to rise and the economy goes into a deep slump. However, Bank of Nova Scotia and Enbridge pay attractive dividends that should continue to grow. At current levels, these stocks still look cheap for a buy-and-hold portfolio.
