Canadian dividend investors who missed the rally this year are searching for stocks that might still be undervalued and good to buy heading into 2025.
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Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS) trades near $73.50 at the time of writing compared to $93 at the high point in 2022 and a low of around $55 in late October last year.
Banks typically benefit when interest rates rise. However, the steep increase that occurred in 2022 and 2023 caught many businesses and households by surprise. Those with too much debt have struggled to cover the increase in interest expenses, and this has led to a rise in provisions for credit losses (PCL) at Bank of Nova Scotia and its peers. Now that interest rates are in decline, there should be some relief on the horizon for borrowers, although many Canadians who bought homes in 2020 at rock-bottom rates and took five-year fixed-rate mortgages will still face higher rates on renewal next year.
Business investment could also pick up as borrowing costs decline as long as the economy remains in good shape.
The risk for the banks and investors is a potential downturn in the economy that leads to a jump in unemployment while rates are still elevated. Economists are broadly predicting a soft landing, but there is no guarantee that will be the case. New tariffs on goods exported to the United States or a worsening geopolitical situation that leads to a spike in oil prices could lead to economic weakness.
Despite the potential headwinds, Bank of Nova Scotia should be a sold buy-and-hold pick at the current price. The new chief executive officer is shifting the growth investments to the United States and Canada and away from South America. It will take time to see the results, but BNS stock provides a 5.75% dividend yield right now, so you get paid well to wait.
TC Energy
TC Energy (TSX:TRP) is up 25% in 2024. The stock trades near $65 at the time of writing compared to $74 at the high point in 2022 before an extended pullback saw it go as low as $45 last year.
Interest rates are to blame for much of the pain that occurred during the rout. TC Energy used a lot of debt to fund its growth program and had to take on extra debt to get its Coastal GasLink project completed last year. Now that interest rates are falling, TC Energy should see a reduction in interest expenses. This can potentially free up more cash for dividends or for reducing debt.
Management has done a good job of monetizing non-core assets over the past year to shore up the balance sheet to position the company to pursue its growth program. Investors who buy TRP stock at the current level can get a dividend yield of 5.8%. The board has increased the dividend for 24 consecutive years.
The bottom line on top TSX dividend stocks
Bank of Nova Scotia and TC Energy pay attractive dividends that should continue to grow. If you have some cash to put to work in a portfolio focused on high dividend yields, these stocks deserve to be on your radar.
