Canadian pensioners are searching for good dividend stocks to add to their self-directed Tax-Free Savings Account (TFSA) focused on passive income. A number of oversold TSX dividend stocks are starting to move higher after the recent cuts to interest rates, but many still offer attractive yields and more upside should be on the way.
BCE
BCE (TSX:BCE) plunged over the past two years, falling from $74 in in 2022 to below $43 in early July this year. Rate cuts by the Bank of Canada have since triggered a bounce with BCE now up more than 10% in the past month. The central bank is expected to continue reducing interest rates through the end of the year and into 2025, so more upside could be on the way for BCE’s share price.
On the operational side, the company reported stable results for the second quarter (Q2) of 2024, and management maintained financial guidance for the year. Staff cuts and a reduction of capital investments have reduced expenses and are providing a boost to free cash flow. This should help support the dividend heading into 2025.
The stock isn’t without risk. Challenges in the media division and telecom price wars could remain headwinds over the near term. If a recession occurs in 2025, the stock could retest the 2024 low. That being said, BCE is targeting operating revenue for 2024 that is similar to or slightly higher than last year and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) are forecast to rise compared to 2023. Based on this outlook and the anticipated benefits from reduced borrowing costs next year, BCE looks undervalued.
Investors who buy BCE at the current level can get a dividend yield of 8.3%. That’s significantly higher than the rate offered on Guaranteed Investment Certificates (GICs).
Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS) trades near $63 at the time of writing. The stock was as low as $55 last fall but remains way off the $93 it reached in early 2022. A decline in interest rates should lead to a reduction in provisions for credit losses (PCL) in the coming quarters, and investors could even start to see PCL reversals from Bank of Nova Scotia and the other Canadian banks as long as the economy holds up and there isn’t a spike in unemployment. PCL surged in the past year as soaring interest rates pushed borrowers with too much debt into a difficult situation.
Bank of Nova Scotia’s new chief executive officer reduced headcount by about 3% last year to trim expenses, and the bank plans to shift its growth investments away from South America to focus more on opportunities in Canada, the United States, and Mexico in the coming years. It will take some time for the transition to deliver results, but investors get paid well to wait. At the current price, the stock provides a 6.7% dividend yield.
The bottom line on top TSX stocks for passive income
BCE and Bank of Nova Scotia pay attractive dividends and offer decent upside potential. If you have some cash to put to work, these stocks look undervalued today and deserve to be on your radar.
