The market correction is giving RRSP investors the best opportunity in a year to buy top TSX financial stocks at undervalued prices. Ongoing volatility is expected in the near term, but great companies with rising dividends tend to deliver solid total returns over the long haul.
TD Bank
TD (TSX: TD)(NYSE: TD) trades for $84 per share at the time of writing. That’s closing in on the 12-month low of just over $80 and well below the $109 the stock hit earlier this year.
Rising recession fears are driving down bank stocks as investors worry that consumers and businesses will slow down their borrowing. High inflation and rising interest rates are a double hit for highly leveraged firms and households. Soaring prices are eating up excess cash, and the jump in variable and fixed-rate loan costs will put some borrowers in a tight spot in the coming months.
Defaults will start to rise and investors are worried that the housing bubble in Canada is finally about to burst. This all points to tough times for TD and its peers, but the selloff in the share price looks overdone.
TD has a strong balance sheet and can ride out a downturn. The company is actually in growth mode, spending US$13.4 billion to buy First Horizon in the United States. Once the deal closes, TD will be a top-six bank in the American market.
The board raised the dividend by 13% late last year. Investors should see another generous payout hike for 2023. TD is one of the best dividend-growth stocks on the TSX Index over the past two decades.
Long-term investors have done well buying the stock on big dips. A $10,000 investment in TD 25 years ago would be worth more than $185,000 today with the dividends reinvested.
Sun Life Financial
Sun Life (TSX: SLF)(NYSE: SLF) is an insurance, wealth management, and asset management company with operations and subsidiaries mostly located in Canada, the United States, and Asia.
The stock is down to a 12-month low near $57 at the time of writing compared to a high of $74 in February. Sun Life generates strong revenue and cash flow from its core businesses and has significant growth potential in the coming years, particularly in Asia. The expansion of the middle class in India, the Philippines, Indonesia, and other countries in the region where Sun Life has an entrenched position will drive long-term demand growth for insurance and investment products.
Sun Life increased the dividend by 20% late last year and raised the payout by another 4.5% when it released the Q1 2022 results. This suggests that management isn’t too concerned about the profit outlook over the next couple of years.
Investors who buy the stock at the current share price can pick up a solid 4.8% dividend yield. A $10,000 investment in Sun Life 10 years ago would be worth about $38,000 today with the dividends reinvested.
The bottom line on top stocks for RRSP investors
TD and Sun Life are top TSX dividend stocks that should deliver strong distribution growth and attractive total returns for patient investors. If you have some money to put to work in a self-directed RRSP, these stocks deserve to be on your radar.
