Passive Income Alert: 2 Top Canadian Dividend Stocks for TFSA Yield Investors


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Passive Income Alert: 2 Top Canadian Dividend Stocks for TFSA Yield Investors's Profile

While the market rebound wiped out most of the best deals in the TSX Index, some top dividend stocks still look attractive for a passive income portfolio.

Let’s take a look at two high-yield stocks that deserve to be on your Tax-Free Savings Account (TFSA) radar right now.


Enbridge (TSX:ENB)(NYSE:ENB) trades near $44 per share compared to above $57 earlier this year. At the time of writing, investors can pick up a 7.3% dividend yield.

The stock took a hit as part of the broader drop in the energy sector. Enbridge doesn’t produce oil or gas, but it moves the commodities from the producers to refineries and other destinations. The pandemic lockdowns forced people to park their cars in the garage and work from home rather than commute to the office. In addition, airlines grounded most of their planes.

This resulted in a significant drop in demand for gasoline, diesel fuel and jet fuel. The refineries slashed production, meaning that Enbridge saw less throughput on its core mainline system. The network normally runs near capacity and the reopening of the economy will see fuel demand improve in the coming months.

Enbridge’s natural gas distribution utilities and renewable energy assets continue to perform well.

The company delivered solid results in Q2 2020 despite the challenging times. Adjusted earnings came in at $0.56 per share compared to $0.67 in Q2 2019. Enbridge said distributable cash flow (DCF) actually rose to $2.4 billion from $2.3 billion in the same quarter last year. Management reaffirmed the 2020 DCF guidance of $4.50-$.480 per share.

The balance sheet is in good shape and Enbridge has access to $14 billion to fund its ongoing capital program.

The stock appears oversold today and investors get paid well to wait for a recovery.

Bank of Nova Scotia

Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) trades near $56 per share at writing. The stock started the year above $73.

Canadian banks took a hit in recent months due to concerns the steep rise in unemployment could trigger massive loan defaults. The banks all set aside billions of dollars in fiscal Q2 for credit loss provisions, so they anticipate some pain.

However, the selloff in the stocks might have been a bit overdone.

Government aid for individuals and businesses helped avoid the worst-case scenario. The Canadian economy is now bouncing back as the provinces reopen various sectors. Economists anticipate a bumpy economic rebound, but it appears things are on the right track.

Low interest rates help existing homeowners who need to renew their mortgages. New buyers flooded the market in the past month, sending prices soaring. This is the opposite of what the CMHC predicted.

Risks remain for the banks. A second wave and new lockdowns would hurt the recovery. In addition, loan deferrals are set to end in the next few months and the government intends to modify or eliminate the CERB program. This could lead to a jump in defaults.

Bank of Nova Scotia gets about a third of its profits from international operations primarily located in Latin America. The bulk of the assets operate in Mexico, Peru, Chile, and Colombia. The pandemic continues to expand in these countries, so the international division could see pain linger for some time.

Overall, however, Bank of Nova Scotia appears cheap today. The drop in the share price accounts for the near-term risks. Five years from now, the stock should be much higher.

Investors who buy at the current level can pick up a 6.4% yield.

The bottom line

Enbridge and Bank of Nova Scotia remain attractively priced and now offer above-average yields. If you are searching for buy-and-hold picks for a TFSA income portfolio, these stocks deserve to be on your radar today.

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The Motley Fool owns shares of and recommends Enbridge. The Motley Fool recommends BANK OF NOVA SCOTIA. Fool contributor Andrew Walker owns shares of Enbridge.

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