Top TSX dividend stocks that took a big hit through much of 2023 are starting to recover. Retirees and other investors seeking passive income are wondering which stocks are still undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA).
Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS) trades near $63 per share at the time of writing compared to $93 in early 2022. The stock was as low as $55 in late October before bargain hunters started scooping up oversold bank stocks.
The recent optimism comes as investors are starting to bet that the Bank of Canada and the U.S. Federal Reserve are done raising interest rates in their effort to get inflation under control. In fact, the American central bank just said it expects to begin cutting rates in the second half of next year to help ensure a soft landing for the economy.
A drop in interest rates would take some pressure off bank customers who are struggling with higher debt expenses. At the same time, lower rates could jumpstart business investment and support the housing market.
Bank of Nova Scotia expects fiscal 2024 earnings to be slightly above the 2023 level. The bank is going through a strategic shift that is designed to boost shareholder returns. Bank of Nova Scotia will limit additional investment in its South American operations located in Colombia, Peru, and Chile while focusing more on Canada, the United States, and Mexico.
Investors who like a turnaround bet can get a 6.7% dividend yield from BNS stock right now and simply wait for the rebound.
BCE
BCE (TSX:BCE) trades near $54 per share at the time of writing compared to $65 in May this year. The stock was as low as $50 in early October.
Rising interest rates are to blame for most of the pain. BCE uses debt to fund part of its large capital program. As borrowing costs increase, profits are negatively impacted. BCE expects earnings per share to drop a bit in 2023 compared to last year.
It costs a lot of money to build mobile and fibre optic networks across a country as large as Canada. In fact, BCE spent about $5 billion on capital initiatives in 2022. These investments will ultimately drive revenue growth and help protect BCE’s competitive position.
Interest rates are expected to decline in 2024, so there should be a rebound in earnings next year. BCE’s core mobile and internet businesses are performing well and BCE still expects overall revenue and free cash flow to increase in 2023 compared to 2022.
Investors who buy BCE stock at the current level can get a 7.1% dividend yield. BCE increased the payout by at least 5% in each of the past 15 years.
The bottom line on cheap dividend stocks for passive income
Bank of Nova Scotia and BCE pay attractive dividends that should continue to grow. If you have some cash to put to work in a TFSA targeting passive income, these stocks still look undervalued and deserve to be on your radar.
