The 2025 Tax-Free Savings Account (TFSA) limit is $7,000. Investors with some extra cash to put to work next year are wondering which TSX stocks might still be undervalued heading into 2025 and could be good to buy for a self-directed TFSA focused on passive income and long-term total returns.
Fortis
Fortis (TSX:FTS) is a Canadian utility company with operations located across Canada, the United States, and the Caribbean. The businesses include power-generation facilities, natural gas distribution utilities and electricity transmission networks. Fortis gets nearly all of its revenue from rate-regulated assets. This is important for dividend investors who want to own stocks that can sustain payouts.
Fortis trades near $60 per share at the time of writing. The stock is up about 11% in the past six months but is down from the recent high close to $64.
Fortis has a good track record of delivering growth through a combination of strategic acquisitions and internal development projects. The company hasn't made a large purchase for several years but is working on a $26 billion capital program. As the new assets are completed and go into service, Fortis expects the rate base to increase from $38.8 billion to $53 billion over five years. The boost to revenue and cash flow should support planned annual dividend increases of 4% to 6%.
Fortis raised the dividend in each of the past 51 years. Investors who buy the stock at the current level can get a dividend yield of 4%.
Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS) trades near $77 at the time of writing. The stock is up about 23% in the past six months but is still way off the $93 it reached in early 2022 at the top of the first bank stock rally that occurred after the pandemic crash.
Bank of Nova Scotia has underperformed most of its large Canadian bank peers over the past decade. A new chief executive officer took over in 2023 and is making changes to help drive better returns for shareholders.
Bank of Nova Scotia trimmed staff by about 3% to reduce expenses and is shifting its growth investments to the United States and Canada. The bank announced a US$2.8 billion deal in 2024 to buy a 14.9% stake in KeyCorp, a U.S. regional bank. Bank of Nova Scotia also created a new executive position to oversee expansion in Quebec.
Previously, Bank of Nova Scotia invested billions of dollars to buy banks and credit card portfolios in Latin America. Growth potential in Chile, Colombia, Mexico, and Peru is arguably attractive as the middle class expands, but the big bets haven't paid off for shareholders. Economic and political uncertainty are always present in these markets. As such, bank investors have largely preferred to own other Canadian banks.
Investors who buy BNS stock at the current price can get a dividend yield of 5.5%, so you get paid well to wait for the turnaround efforts to deliver results.
The bottom line on top TSX stocks for a TFSA
Fortis and Bank of Nova Scotia are good examples of TSX stocks that pay attractive dividends that should continue to grow. If you have some cash to put to work in a TFSA, these stocks deserve to be on your radar.
