For income investors who missed the recent rebound in dividend stocks, finding undervalued TSX dividend-growth picks can be crucial for building a high-yield self-directed Tax-Free Savings Account (TFSA) portfolio. Here are some top dividend stocks that might still be undervalued and worth considering.
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BCE (TSX: BCE)
BCE Inc., one of Canada’s largest telecommunications companies, has faced a turbulent period recently. The stock peaked at $74 in 2022 but fell to as low as $43 this summer. Despite a slight recovery to around $47, BCE remains below its previous highs.
Impact of High Interest Rates
High interest rates have impacted BCE’s earnings, primarily due to increased borrowing costs. The company relies on debt to fund its capital programs, including expanding its 5G network and installing fibre optic lines. These investments are essential given Canada’s vast geography and relatively small population, which makes building and maintaining communication infrastructure expensive.
Outlook and Dividend Yield
The Bank of Canada has already cut interest rates by 0.75% in 2024, with more cuts anticipated. This should benefit BCE in the coming years. Although BCE had to reduce its workforce by over 10% to streamline operations, its current dividend yield stands at an attractive 8.5%. Provided revenue remains stable, the dividend appears safe, making BCE a potentially undervalued option for dividend investors.
Bank of Nova Scotia (TSX: BNS)
The Bank of Nova Scotia, one of Canada’s major banks, has seen its stock rebound to around $71 from a 12-month low of $55. However, it remains significantly below its peak of $93 reached in early 2022.
Effects of Falling Interest Rates
Falling interest rates are likely to ease the financial burden on businesses and households, reducing default risks. This should lower the Bank of Nova Scotia’s provisions for credit losses (PCL) and support its profits. As a result, the bank may have more cash available for dividends.
Dividend Yield
Currently, Bank of Nova Scotia offers a dividend yield of 6%. With a solid financial foundation and reduced interest expenses, it remains a strong candidate for dividend-focused investors.
TC Energy (TSX: TRP)
TC Energy has a strong track record of increasing its dividend annually for the past 24 years. The company’s substantial capital program, expected to be between $6 billion and $7 billion annually, is designed to enhance cash flow and support consistent dividend growth.
Recent Performance and Prospects
TC Energy’s stock price has increased from $45 in early October last year to $63 today, though it remains below its 2022 peak of $74. The upcoming commercialization of the Coastal GasLink pipeline in 2025 is expected to boost the company’s cash flow further.
Dividend Yield
At present, TC Energy’s dividend yield stands at 6%. This, combined with its robust dividend history and strategic investments, makes it a compelling choice for long-term dividend investors.
Enbridge (TSX: ENB)
Enbridge is currently trading near $56 per share, close to its 12-month high. This level is approaching the $59 mark it hit in 2022 before a series of rate hikes affected pipeline stocks.
Financial and Strategic Developments
Lower borrowing expenses are expected to benefit Enbridge’s profitability, providing more cash flow for dividends. The company is also completing a significant acquisition in the U.S. and has a $24 billion secured capital program, which will enhance its cash flow over the medium term. Enbridge has a remarkable record of increasing its dividend annually for the past 29 years.
Dividend Yield
Enbridge offers a dividend yield of 6.5%. With its strong financial performance and ongoing strategic investments, it remains an attractive option for dividend-seeking investors.
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Enbridge (TSX): A Reliable Income Stock or a Risky Investment?
BCE, Bank of Nova Scotia, TC Energy, and Enbridge are all strong dividend stocks that offer attractive yields and trade at reasonable prices. For investors looking to build a high-yield TFSA portfolio, these stocks are worth considering. Each has its unique advantages and potential for steady dividend income, making them solid choices for generating passive income.