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2 Top Dividend Stocks to Buy on the Dip and Profit From the Market Crash

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The recent sharp decline caused by coronavirus fears and the growing risk of a global recession sees the Dow Jones Industrial down by 11% over the last week, its worst decline since the 2008 financial crisis, while the S&P/TSX Composite Index fell by a more modest 8%.

This has created the opportunity to acquire quality blue-chip dividend paying stocks at attractive valuations. Here are two top dividend stocks which are attractively valued, making now the time to buy.

A leading bank

Toronto-Dominion Bank (TSX:TD)(NYSE:TD) pays an eligible dividend and has hiked that payment for the last nine years straight to now be yielding a juicy 4%. With a conservative payout ratio of 46%, not only is the dividend sustainable but there’s also enough room for Toronto-Dominion to reward shareholders with another increase.

There’s a growing consensus among analysts that the Big Five banks will experience a firmer 2020 when compared to their lackluster 2019. Toronto-Dominion because of its substantial exposure to the faster growing U.S. economy, will report some solid results.

That can already be seen from the bank’s fiscal first quarter 2020 report, where net income shot up by an impressive 24% year over year on the back of a healthy 6% increase in retail banking revenue and record wholesale revenue. That strong growth offset an 8% decline in earnings from Toronto-Dominion’s U.S. retail banking business.

While those strong results were promising, latest events surrounding the coronavirus and growing fears of a global recession will place pressure on the banks performance in 2020, although it has yet to be seen how severe the fallout will be.

Nonetheless, Toronto-Dominion has not been as roughly handed as many other stocks, losing only 5% for the year to date. The bank has a long history of delivering value over the long term, returning 169% over the last decade, if dividends were taken as cash, which equates to an impressive compound annual growth rate (CAGR) of 10%.

Leading oil sands producer

Canadian Natural Resources (TSX:CNQ)(NYSE:CNQ) is Canada’s largest oil sands producer and despite the prolonged slump in oil prices remains a free cash flow generating machine.

After losing 19% since the start of 2020, Canadian Natural appears attractively valued and is rewarding shareholders with a dividend that it has hiked for the last 19 years straight to be yielding a juicy 4%.

Regardless of oil’s protracted downturn Canadian Natural continues to unlock value for investors. For 2019, it expects to generate free cash flow of around $6.2 billion before dividends, share purchases and acquisitions. Canadian Natural intends to use that to reduce debt and fund its share buyback program.

Its quality long-life, low-decline rate low-cost assets, where operating costs for the first nine months were $11.76 per barrel produced, allows Canadian Natural to continue generating significant free cash flow during 2020, even after accounting for the difficult operating environment where crude is trading at under US$50 per barrel.

Coupled with a conservative dividend payout ratio of 43%, it not only bodes well for the sustainability of the payment, but also for Canadian Natural to reward patient investors with another annual dividend hike.

Foolish takeaway

The current market crash has created an ideal environment for investors to acquire quality blue-chip dividend paying stocks that possess solid growth prospects at very attractive valuations.

By buying Toronto-Dominion and Canadian Natural today, you can lock-in a 4% dividend yield and the potential for considerable capital gains once markets rebound.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Matt Smith has no position in any of the stocks mentioned.

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