The TSX is due for a correction after the stellar 2024 run. In fact, some stocks have already started to give back gains.
Investors who missed the big rally last year are wondering which dividend stocks might be good to buy on a dip for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio.
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Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS) trades near $74 per share at the time of writing compared to $80 in late November.
The stock was as high as $93 in early 2022, so there is decent upside potential on a rebound.
Bank of Nova Scotia is a contrarian pick in the Canadian bank sector. The stock underperformed its peers in the past five years. This is likely due to investor concerns regarding Bank of Nova Scotia’s Latin American operations. The bank spent billions of dollars over the past two or three decades on acquisitions to build a large presence in Mexico, Peru, Chile, Colombia, and smaller markets in the region. The idea was to capitalize on a large, underbanked population that would offer good growth potential as the middle class expands.
Economic and political volatility, however, are always present, and Bank of Nova Scotia’s investors haven’t enjoyed the anticipated returns.
The bank’s new chief executive officer appears to be shifting the growth strategy to the United States and Canada. Bank of Nova Scotia spent US$2.8 billion in 2024 to acquire a 14.9% position in KeyCorp, an American regional bank. The move gives Bank of Nova Scotia a good platform to expand its U.S. presence, where its peers have invested heavily.
Bank of Nova Scotia recently announced it will take a $1.4 billion hit on the sale of its assets in Colombia, Costa Rica, and Panama. The move shows that the bank is serious about exiting some of its Latin American operations. Investors, however, aren’t pleased with the losses and might be concerned that monetizing other international assets might not bring in as much as potentially expected.
It will take time for the turnaround efforts to deliver results. However, investors can collect a solid 5.75% dividend yield at the current share price while they wait.
Fortis
Fortis (TSX:FTS) is down about $5 per share since early December. The pullback is expected after the solid rally the stock enjoyed in the second half of 2024.
Fortis operates utilities in Canada, the United States, and the Caribbean. Growth comes from capital projects and acquisitions. The sharp jump in interest rates in 2022 and 2023 put pressure on utility stocks due to their tendency to use a lot of debt to fund their growth initiatives. The rebound in Fortis stock last year coincided with rate cuts in Canada and the United States.
The recent pullback is likely due to investors taking a step back on expectations for additional rate cuts in the United States. Inflation is sticky south of the border, but the economy is still in good shape. This might force the U.S. central bank to put rate cuts on hold.
If that happens, or if rates are increased again, Fortis and its utility peers could see new downside.
On the positive side, Fortis has increased the dividend for 51 consecutive years and plans to boost the distribution by 4% to 6% annually through at least 2029. At the current price,e investors can get a yield of 4.2%.
The bottom line
Bank of Nova Scotia and Fortis pay attractive dividends. If you are looking for TFSA or RRSP picks, these stocks deserve to be on your radar as the market corrects.
