The pullback in the stock market is finally giving RRSP investors a chance to pick up some of Canada’s top stocks at reasonable prices.
BCE has long been a buy-and-hold favourite among conservative dividend investors who want reliable and growing distributions from a stock they can simply tuck away for decades.
In the post-crash years, the share price ran up as yield investors moved out of GICs and into names like BCE, but the rise in interest rates over the past 12 months has some investors concerned that BCE and similar go-to dividend picks might get dumped on a large scale.
The stock is already down from $62 last December to the current price of $51.50 as a result of the concerns. More downside could certainly be on the way, but the pullback is starting to look overdone.
BCE is still growing and commands a dominant position in a market with few competitors. The company generates nearly $1 billion in free cash flow per quarter and expects free cash flow for 2018 to be 3-7% higher than last year.
At the time of writing, the stock provides a solid 5.9% yield. It will be quite some time before investors can get that kind of return from a GIC.
TD is another reliable dividend-growth stock. The company has raised the payout by a compound annual rate of better than 10% for the past two decades and investors should see the trend continue.
TD reported fiscal Q3 2018 earnings growth of 12% compared to the same period last year, supported by strong results from the Canadian and U.S. operations. Canadian retail net income rose 7%, while U.S. retail net income increased 29%.
Net interest margins improved on both sides of the border, which was partially driven by higher interest rates.
In July, TD bulked up its wealth management operations with the announced $792 million purchase of Greystone Managed Investments. The deal makes TD Canada’s largest money manager based on assets and gives the company added expertise in the alternative investment segment.
TD’s stock doesn’t go on sale very often, so the dip from $78 to $72.50 over the past month is beginning to look like an early holiday gift for buy-and-hold investors. The dividend currently provides a yield of 3.7%.
Is one more attractive?
BCE and TD both appear oversold right now and pay attractive dividends that should continue to grow. If you only choose one for your RRSP today, TD probably offers better upside potential in medium term due to its strong business south of the border.
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Fool contributor Andrew Walker owns shares of BCE.