Canadian pensioners are searching for ways to get better returns on their hard-earned savings to help offset the huge increase in the cost of living that occurred in the past three years. One popular investing strategy for retirees involves buying top TSX dividend-growth stocks.
Fortis
Fortis (TSX:FTS) currently provides a dividend yield of 3.8%. That’s well below the yield investors can get from other dividend stocks. However, the attraction is the reliability of the revenue stream and the planned dividend growth of 4-6% per year through 2028, supported by the $25 billion capital program.
Fortis operates $69 billion in utility assets in Canada, the United States, and the Caribbean. The businesses include power-generation facilities, natural gas distribution utilities, and electricity transmission networks. Companies and households need to keep the lights on and heat or cool their buildings regardless of the state of the economy. This should make Fortis a good stock to own during difficult economic times.
The board has increased the dividend in each of the past 50 years.
Telus
Telus (TSX:T) took a big hit over the past two years, falling from $34 per share in 2022 to as low as $20 in early July this year. The stock trades near $23 at the time of writing but is probably still oversold.
Telus uses debt to fund part of its capital program. The sharp increase in interest rates put a dent in earnings as interest expenses jumped in the past two years. This is largely why the stock pulled back. Telus is also seeing revenue weakness in its Telus International subsidiary. These challenges have put additional pressure on the share price.
Falling interest rates in Canada will reduce borrowing costs in the coming year. This should provide support for profits and can free up more cash to cover dividends. In addition, Telus cut roughly 6,000 jobs over the past year to position the business to succeed in the current environment.
Near-term volatility should be expected, but Telus still expects adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to increase in 2024 compared to last year. Investors who buy Telus at the current price can get a dividend yield of 6.75%.
Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS) is going through a strategy shift that will see the bank focus more on growth in the United States, Canada, and Mexico in the coming years and less on South America, where the company made big bets in Peru, Chile, and Colombia over the past two decades under previous leadership.
The recently announced US$2.8 billion deal to take a 14.9% stake in KeyCorp, a U.S. regional bank, is an indication of the new growth initiative. It will take time for the transition to deliver meaningful results, but there are already signs of progress. The international business is performing well with less capital, and Bank of Nova Scotia is focusing more on high-margin customers in the domestic market.
Investors who buy BNS stock at the current price can get a dividend yield of 5.9%. The shares trade near $72 right now compared to $93 in early 2022, so there is decent upside potential.
The bottom line on top stocks for passive income
Fortis, Telus, and Bank of Nova Scotia pay good dividends that should continue to grow. If you have some cash to put to work, these stocks deserve to be on your radar.
