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Canadian investors who missed the rally in the TSX this year can still find stocks that pay generous dividends for a self-directed Tax-Free Savings Account (TFSA) portfolio targeting passive income and total returns.
Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS) trades for close to $72 per share at the time of writing. The stock is up about 20% in the past 12 months, but is still below the $93 it reached in early 2022.
The stock’s performance in recent years disappointed investors. Bank of Nova Scotia actually trades slightly lower than it did five years ago. This is in contrast to most of its Canadian peers that have delivered gains of 5% to 95% over the same timeframe.
Looking ahead, better days could be on the way. A new CEO took control in 2023 and is already implementing significant changes. Bank of Nova Scotia trimmed staff last year to reduce expenses and is shifting its growth investments to opportunities in the United States, Canada, and Mexico. This is in contrast to the focus on South America where Bank of Nova Scotia previously spent billions of dollars on acquisitions in Colombia, Chile, and Peru. The operations in South America hold good growth potential and performed well in the last quarter, despite receiving reduced capital. These businesses might remain in the portfolio, or could be sold with proceeds allocated to other opportunities in the North American markets.
Investors will have to be patient during the transition. In the meantime, however, you get paid a decent 5.9% dividend yield to wait.
Telus
Telus (TSX:T) is arguably a contrarian pick right now. High interest rates are driving up debt expenses while price wars, regulatory uncertainty, and challenges at a subsidiary are putting pressure on revenue. This is why Telus trades near $22 today compared to $34 in 2022.
At this point, the worst of the pain should be in the rearview mirror. Falling interest rates in Canada will help lower borrowing expenses for Telus. The company uses debt to fund part of the large capital program required to expand and upgrade communications networks. On the operational side, Telus reduced staff by roughly 6,000 positions in the past year in a move that helps cut costs. Difficulties at its Telus Digital subsidiary should stabilize next year and price battles could also subside in 2025.
Telus still expects to deliver higher adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in 2024 than it did in 2023. Based on this outlook and the prospect of much lower interest rates, the stock might be undervalued right now.
Investors who buy Telus stock at the current level can get a dividend yield of close to 7%. Telus has increased the dividend annually for more than 20 years.
The bottom line on high-yield TSX stocks
Bank of Nova Scotia and Telus are good examples of TSX dividend stocks that still look cheap and offer high dividend yields. If you have some cash to put to work these stocks deserve to be on your radar.
