Canadian investors have an opportunity to buy great TSX dividend stocks at discounted prices for their self-directed Tax-Free Savings Account (TFSA) focused on generating reliable and growing passive income.
Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS) trades near $63.50 at the time of writing. The stock dipped as low as $55 in the past year but is still way off the $93 the share price reached in early 2022 at the height of the post-crash recovery in the bank sector.
BNS stock isn’t as cheap as it was last fall, but investors still have a chance to get in at an attractive level, and there is decent upside potential for the next recovery.
Bank of Nova Scotia remains very profitable despite rising provisions for credit losses (PCL). The bank set aside roughly $1 billion in the fiscal second quarter (Q2) of 2024 for potential bad loans. This is up from $700 million in the same period last year. High interest rates are putting pressure on commercial and residential borrowers that are carrying too much debt. The Bank of Canada’s recent cut to interest rates will provide immediate relief for holders of variable-rate loans and should lead to lower rates on fixed-rate mortgages. Additional cuts to interest rates are expected before the end of this year and through 2025 as the central bank becomes more comfortable with declining inflation while attempting to navigate a soft landing for the economy.
As long as unemployment doesn’t surge while rates are high, the PCL numbers should flatten out or start to decline in the next few quarters.
Bank of Nova Scotia generated adjusted net income of $2.1 billion in fiscal Q2 2024 compared to $2.16 billion in the same quarter in 2023. Management reduced staff by about 3% last year, so investors should see a positive impact in 2024 due to the lower salary expenses.
Bank of Nova Scotia has ample excess capital to ride out any additional market turbulence, and the company’s new focus on growth in Canada, the United States, and Mexico could attract new investor interest in the next few years if the strategy starts to deliver improved results.
In the meantime, investors can pick up a solid 6.65% dividend yield right now from BNS stock.
Telus
Telus (TSX:T) trades for less than $22 per share at the time of writing compared to $34 at one point in 2022. High interest rates are to blame for most of the decline. Telus uses debt to fund part of its capital program, so rising borrowing costs can reduce profits and cut into cash that is available for share buybacks and dividends.
Falling interest rates could help put a new tailwind behind the stock next year. At the same time, the worst appears to be in the rearview mirror for Telus International, the subsidiary that provides multi-lingual call centre and IT services to global companies. Telus reduced its guidance last year due to revenue declines at Telus International, but the parent company still delivered growth in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of 7.4% last year and is targeting adjusted EBITDA growth of better than 5% for 2024.
Telus Health and the Consumer Goods and Agriculture subsidiary possess attractive long-term growth potential that might not be fully appreciated by the market today. Based on the 2024 outlook, Telus stock is probably oversold, even as the company faces some near-term headwinds.
Investors who buy Telus stock at the current level can get a 7.1% dividend yield, so you get paid well to wait for the rebound.
The bottom line on top stocks for passive income
Bank of Nova Scotia and Telus pay attractive dividends that should continue to grow. If you have some cash to put to work, these stocks look cheap today and deserve to be on your radar for a retirement portfolio targeting high-yield passive income.
