Canadian retirees and other dividend investors are wondering which TSX stocks still trade at attractive prices for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio focused on dividends and total returns.
In the Canadian bank sector, the story in 2024 has been mixed, with some stocks hitting new record highs while others are still trying to catch up to their 2022 peak or even falling to multi-year lows. In the case of the laggards, there is an opportunity to pick up decent dividend yields right now with a shot at good upside over the long run.
TD Bank
TD (TSX:TD) trades for close to $75 per share at the time of writing. The stock recently dipped to $73, hitting a level not seen since January 2021. TD was actually as high as $108 in early 2022 but has since trended lower.
Rising interest rates triggered a downturn for the entire bank sector in 2022 and 2023. Investors worried that the sharp jump in interest rates in Canada and the United States would cause a recession and unleash a wave of defaults.
Provisions for credit losses (PCL) at TD and the other banks moved higher as more borrowers ran into trouble, but the economy has held up well. As soon as the central banks signalled they were done raising interest rates late last year, most banks rallied and delivered big 2024 gains for investors.
TD, however, is down 12% in 2024. The reason lies in its troubles with U.S. regulators, who hit TD with fines of more than US$3 billion this year and placed an asset cap on the American business as penalties for not having adequate systems in place to protect against money laundering.
TD's new chief executive officer (CEO), who will take over in 2025, now has to pivot the bank to drive growth. Investors will need to be patient, but TD should eventually get things sorted out. In the meantime, investors can pick up a decent 5.6% dividend yield.
Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS) has enjoyed a nice run in the past 12 months, rebounding about 25% to the current price near $78 per share. That's still below the $93 the stock reached in early 2022 at the peak of the first post-pandemic rally.
Bank of Nova Scotia put a new CEO in place last year in an attempt to shake up the bank to get better returns for investors. In the past five years, Bank of Nova Scotia's stock price is only up about 6% compared to much larger gains at BMO, Royal Bank, and CIBC.
Bank of Nova Scotia's high PCL is one reason the stock has trailed some of its peers. The reason for the longer-term underperformance, however, is largely due to the big bets made on Latin America over the past few decades. Bank of Nova Scotia spent billions of dollars to buy banks and credit card portfolios in Mexico, Peru, Chile, and Colombia.
The four countries have a combined population of more than 230 million that is largely underbanked compared to Canada, so there is an argument for growth potential as the middle class expands. Economic and political turbulence, however, make investors nervous when it comes to these emerging markets.
Bank of Nova Scotia's new strategy involves deploying growth capital to opportunities in the United States and Canada. It will take time for investors to see the benefits, but the current 5.4% dividend yield pays you well to wait.
The bottom line on cheap TSX bank stocks
TD and Bank of Nova Scotia pay good dividends with attractive yields. If you have some cash to put to work in a contrarian portfolio, these TSX bank stocks deserve to be on your radar.
