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The pullback in the share prices of top TSX dividend stocks is giving retirees and other investors seeking passive income a chance to get high yields from great dividend payers while setting up their portfolios for a shot at some decent capital gains on a rebound.
Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS) trades near $60 per share at the time of writing compared to $74 in February and as high as $93 at the peak in 2022.
The board raised the dividend earlier this year, despite the headwinds facing the bank sector. Investors are concerned that high interest rates will remain in place for too long as the Bank of Canada fights to get inflation down to its 2% target. Rate hikes take up to 18 months to work their way through the economy, according to economists, so there is a risk that the central bank has been too aggressive with its rate increases.
Households are already struggling with rising mortgage costs along with the jump in the cost of living. If a deep recession occurs and unemployment spikes, there could be a wave of loan defaults and bankruptcies. This would be bad news for Bank of Nova Scotia and its peers.
That being said, economists generally anticipate a short and mild recession will occur in 2024 or 2025. Assuming they are correct, BNS stock is probably oversold right now. Investors who buy Bank of Nova Scotia at the current level can get a 7% dividend yield.
TC Energy (TSX:TRP) owns and operates more than 90,000 km of natural gas pipelines and 650 billion cubic feet of natural gas storage capacity in Canada, the United States, and the Caribbean. The company also has oil pipelines and power-generation facilities.
Management plans to spin off the liquids pipeline assets into a separate business to unlock value and raise cash to help fund the capital program. TC Energy is also selling stakes in some of its non-core gas assets. In 2023, the company already completed deals for $5.3 billion. The funds help shore up the balance sheet after TC Energy’s Coastal GasLink project saw its budget jump from about $6 billion to an estimated $14.5 billion. Fortunately, Coastal Gas Link has achieved mechanical completion, so investors can focus on other growth initiatives.
TC Energy’s assets are performing well. Growth in comparable earnings before interest, taxes, depreciation, and amortization (EBITDA) should be near the upper end of the 5-7% guidance for 2023, despite all the challenges faced during the year. Management expects the remaining capital program to generate adequate revenue and cash flow growth to support planned annual dividend increases of 3-5%.
TC Energy trades for close to $50 per share at the time of writing. The stock was as high as $74 last year. Investors who buy TRP stock at the current level can get a 7.4% dividend yield.
The bottom line on top stocks for passive income
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 targeting passive income, these stocks look cheap today and deserve to be on your radar.