2 Undervalued TSX Stocks Worth Buying Right Now

The market correction is driving the share prices of some of Canada’s top dividend stocks to cheap and attractive levels. Investors with a buy-and-hold investment strategy can now earn great dividend yields with the potential for some decent upside potential in the share price as the TSX recovers.

Bank of Nova Scotia

Bank of Nova Scotia (TSX:BNS) is trading at just 8.1 times trailing 12-month earnings as of this writing. This is the kind of multiplier one might expect in the face of a financial crisis. A recession is likely in 2023 or 2024, and it could be more severe than economists are currently predicting, but the fall in the Bank of Nova Scotia’s share price still seems overdone.

The bank reported adjusted earnings in fiscal 2022 that exceeded 2021 results. Next year could be more difficult. Revenues could fall due to lower mortgage sales and business borrowing, while loan losses are likely to increase as the impact of rising interest rates hits households and businesses.

One thing investors may overlook is that higher interest rates also tend to increase banks’ net interest margins, which can help offset the negative impact.

A new chief executive officer will take control of the bank in 2023, and investors could see a wave of new measures to cut spending and boost returns. As long as the global economy avoids a major crash, the bank should deliver another year of solid earnings.

The Bank of Nova Scotia twice increased its dividend in 2022 and allocated excess cash to buy back shares at a discounted rate. These initiatives will benefit shareholders over the long term. Investors buying BNS shares at the current price can earn a 6.3% dividend yield and just wait for the recovery.

TC energy

TC energy (TSX:TRP) has taken a hit in the second half of 2022. The stock has fallen from $74 in June to $55 at the time of writing. Some of the decline is related to the broader pullback in the energy sector, but TC Energy has had some company-specific issues that have weighed on the stock price as well.

The main concern is the rising cost of the Coastal GasLink pipeline, which TC Energy is building to transport natural gas from producers in northeastern British Columbia to a new liquefied natural gas (LNG) facility being built on BC’s coast. Management warned investors about cost pressures a few months ago and only reiterated the message, saying a new report on final capital requirements will be out in the first half of next year. That’s bad news for investors, but the project is now 80% complete and TC Energy has already settled its cost-sharing disagreement with LNG Canada. As a result, the stock’s pullback could be overdone.

TC Energy has embarked on a $34 billion capital program that will drive revenue and cash flow growth for years to come. Management intends to monetize non-core assets and remains committed to a plan to increase dividends by 3-5% annually over the medium term. At least the payout should be safe.

Investors who buy TRP shares at the current price can earn a dividend yield of 6.5%.

The bottom line on cheap dividend stocks to buy now

Market volatility is expected to continue over the coming months and additional downside is possible for these stocks. That being said, Bank of Nova Scotia and TC Energy appear undervalued at their current prices and pay attractive dividends that should continue to rise. If you’ve got some money to work with, these stocks deserve to be on your radar.