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TFSA Investors: 2 Good Stocks to Buy for Passive Income in the Market Correction

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A close up image of Canadian $20 Dollar bills
A close up image of Canadian $20 Dollar bills

Written by Andrew Walker at The Motley Fool Canada

The pullback in the TSX is giving investors who missed the rally off the 2020 lows a chance to buy top dividend stocks at cheap prices. Retirees and others seeking passive income in a TFSA can secure above-average yields right now from some great companies.

Bank of Nova Scotia

Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) trades for less than $78 per share at the time of writing compared to $95 in early 2022. The shares are closing in on a 12-month low and now provide new investors with a solid 5.3% dividend yield.

Canadian financial stocks have been on a downward trend for the past three months, as investors worry about the risks posed by rising interest rates. Banks typically benefit when interest rates move higher, as they can generate better net interest margins, but the sharp jump in rates could lead to a spike in loan defaults.

Rate hikes by the U.S. Federal Reserve and the Bank of Canada could trigger a recession. At the same time, the large increase in mortgage costs is fueling fears of a meltdown in the housing market.

If too many people are forced to sell their homes due to higher rates, and a slow economy keeps buyers on the sidelines, a slide in house prices beyond the expected 10-15% decline could cause the banks some grief.

That being said, Bank of Nova Scotia and its peers have strong capital positions to ride out some tough times. Things will have to get really bad before the banks take a meaningful hit.

Bank of Nova Scotia raised the dividend by 11% late last year and increased the payout by another 3% when it reported fiscal Q2022 results.  This suggests that management is comfortable with the revenue and profit outlook.

The stock looks undervalued right now, trading at just 9.4 times trailing 12-month earnings.

BCE

BCE (TSX:BCE)(NYSE:BCE) trades for $62 per share compared to $74 in April. Things haven’t changed very much for the business in the past two months, so the pullback looks overdone.

BCE should be a solid defensive pick to own in a TFSA focused on passive income. The company provides essential internet and mobile service that households and businesses need regardless of the state of the economy. BCE has a strong balance sheet and enjoys the ability to raise prices when it needs additional cash to cover rising costs.

The company is investing billions of dollars to run fibre optic lines to the doorstep of its customers and is expanding its 5G network. These capital programs help protect BCE’s competitive position while setting the business up for revenue growth.

The stock now looks oversold and provides a yield of 5.9%.

The bottom line on cheap dividend stocks to buy for passive income

Bank of Nova Scotia and BCE pay generous dividends that should continue to grow. If you have some cash to put to work in a TFSA focused on passive income, these stocks deserve to be on your radar today.

The post TFSA Investors: 2 Good Stocks to Buy for Passive Income in the Market Correction appeared first on The Motley Fool Canada.

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

2022

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