The 2022 market correction in the TSX Index is finally giving self-directed TFSA and RRSP investors seeking income and total returns and chance to buy top dividend stocks at undervalued prices.
Royal Bank
Royal Bank (TSX:RY)(NYSE:RY) earned more than $16 billion in net income in fiscal 2021 and 2022 is shaping up to be even better based on the fiscal Q1 and Q2 results. The bank is Canada’s largest financial institution by market capitalization and ranks among the top 10 globally.
Royal Bank gets its revenue from several segments and a diverse geographical base. The company has strong personal and commercial banking, capital markets, wealth management, investor and treasury services, and insurance operations in Canada, the United States, and across the globe.
Royal Bank built up a substantial cash pile during the past two years and is now deploying the funds to drive growth. The bank announced a $2.6 billion acquisition in the U.K. to grow the wealth management group in the region. Additional deals could be on the way, especially after the steep drop in valuations across the banking sector in recent months.
Royal Bank increased the dividend by 11% late last year and bumped the payout up by another 7% when it reported fiscal Q2 2022 results. This suggest the board is comfortable with the revenue and profit outlook, despite the economic headwinds being caused by rising interest rates in Canada and the United States.
The stock looks oversold at the current price of $124. Royal Bank traded for close to $150 earlier this year. Investors who buy RY stock on the dip can pick up a solid 4.1% yield. Long-term investors have done well with the shares. A $10,000 investment in RY stock just 25 years ago would be worth more than $185,000 today with the dividends reinvested.
Fortis
Fortis (TSX:FTS)(NYSE:FTS) trades near $59.50 at the time of writing compared to $65 last month. The drop looks overdone, and investors can now get a solid 3.6% dividend yield with attractive payout increases on the way.
Fortis gets 99% of its revenue from regulated utility assets that include power generation, electric transmission, and natural gas distribution businesses located in Canada, the United States, and the Caribbean.
These are essential services that generate steady and predictable cash flow regardless of the state of the economy. As a result, Fortis should be an attractive defensive stock to add to a TFSA or RRSP portfolio to ride out a potential recession in the next two years.
Fortis grows through acquisitions and capital projects. The current $20 billion capital program is expected to raise the rate base by about a third through 2026. This should drive revenue and cash flow growth high enough to support planned average annual dividend increases of 6% through at least 2025. Fortis has other projects under evaluation that could get added to the development plan and boost the size of the distribution hikes or extend the payout-growth outlook.
Fortis raised the dividend in each of the past 48 years. A $10,000 investment in the stock 25 years ago would be worth about $175,000 today with the dividends reinvested.
The bottom line on oversold TSX stocks to buy now
Royal Bank and Fortis are top dividend stocks that pay attractive and growing distributions. If you have some cash to put to work in a TFSA or RRSP, these stocks deserve to be on your radar.
