2019 was a fantastic year for the Toronto Stock Exchange, despite fears of a recession. A couple of months into 2020, the concerns of a market slowdown are growing. Several factors are contributing to the recession scare. The most recent sharp decline caused by the coronavirus outbreak and the risk of a global recession saw the S&P/TSX Composite Index fall by 8%.
As the market sees a decline in stock prices, an opportunity arises for investors who want to leverage the sell-off. Canadian Natural Resources Ltd. (TSX:CNQ)(NYSE:CNQ) and Toronto-Dominion Bank (TSX:TD)(NYSE:TD) are two top dividend assets to buy on the dip.
Oil sands giant
Canadian Natural Resources is the largest oil sands producer in the country. The energy sector is suffering due to a prolonged slump oil prices, but CNQ has managed to retain free cash flow.
CNQ has lost 17.20% since the start of the year, trading at $34.14 per share at writing. The recent decline has made this stock an attractive option to consider, with its 4.39% dividend yield.
CNQ offers a lot of value to shareholders despite dropping oil prices. With the end of fiscal 2019, the energy sector giant had free cash flow of more than $6 billion before dividends. The company intends to use those funds to pay down debts and focus on its share buyback program.
Canadian Natural Resources has a robust long-term performance that allows it to produce significant cash flow at the start of the new decade. The company can still turn a profit in a challenging environment where the cost of a crude oil barrel has gone down to under US$50.
CNQ has a payout ratio below 43% that exhibits its ability to sustain its dividends and reward the more patient shareholders with a dividend increase once the stock climbs back.
Leading financial institution
Another excellent sector on the TSX is Canada’s banking industry. The Toronto-Dominion Bank is trading for $69.51 per share at writing – down by more than 5% from the start of the year. It is offering shareholders a juicy dividend yield of 4.55%, with a payout ratio of almost 45%.
The stock does not just have a sustainable dividend yield. TD also the ability to further increase its shareholders’ dividends. TD already has a fantastic nine-year dividend-growth streak.
Analysts have a consensus that the Big Five banks in Canada are likely to experience a more robust 2020 compared to the lacklustre performance of 2019. TD, out of them all, is the most likely to sport reliable results this year due to its increasing exposure to the retail banking market in the United States.
The growing fears of an economic recession and the coronavirus triggering a massive sell-off can be a challenge. There is a significant amount of pressure on the Big Five to perform in a harsh environment, but the fallout is yet to be seen.
Despite the growing fears, TD is faring well with a modest 5% drop year to date. The bank historically delivers terrific value to its shareholders. Its massive compound annual growth rate of 10% over the past decade stands testament to that.
The current market situation is creating an ideal buying opportunity for investors who want to capitalize on fears of a recession. I think buying reliable dividend-paying shares of companies like Canadian Natural Resources and Toronto-Dominion Bank could prove beneficial in the long run.
Purchasing the stock of both companies could see you lock-in a decent dividend yield and potential gains once the market stabilizes.
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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 Adam Othman has no position in any of the stocks mentioned.