The pullback in the TSX Index is finally giving Canadian pensioners a chance to buy top TSX dividend stocks at undervalued prices for their self-directed TFSA portfolios.
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Royal Bank
Royal Bank (TSX: RY)(NYSE: RY) trades for $124.50 at the time of writing compared to $149.50 earlier this year. The pullback appears overdone, giving retirees a chance to buy a great dividend stock with a 4% yield and get a shot at some nice total returns on the rebound.
Royal Bank raised the dividend by 11% late last year and gave investors another 7% increase when the bank reported fiscal Q2 2022 results. The board wouldn’t have been so generous if management wasn’t comfortable with the revenue and profit outlook for the next few years.
Royal Bank generated $16.1 billion in net earnings in fiscal 2021 and is on track to top that amount in fiscal 2022. Return on equity is robust near 18%, so the current price-to-earnings multiple of 10.9 makes the stock look cheap right now.
An economic downturn and a pullback in the Canadian housing market will put some pressure on earnings growth, but higher net interest margins generated as a result of rising interest rates will help offset the negative impact of aggressive Bank of Canada rate hikes.
Royal Bank continues to invest in digital capabilities to ensure it remains competitive in a rapidly changing industry where people are increasingly comfortable conducting financial transactions through mobile devices.
The bank is Canada’s largest financial institution and one of the top 10 globally based on market capitalization.
Telus
Telus (TSX: T)(NYSE: TU) trades near $29 per share at the time of writing compared to the 2022 high above $34. The stock now offers a 4.7% dividend yield, and investors can look forward to annual distribution growth of 7-10% over the next three years regardless of the direction the economy takes as a result of the Bank of Canada’s battle against inflation.
Telus provides essential internet and mobile services that households and businesses need no matter the state of the economy. This stable revenue stream makes Telus an attractive defensive stock to own in the current environment.
The company is making the investments needed to ensure revenue and cash flow growth. Telus is completing its copper-to-fibre transition and accelerating the expansion of its 5G mobile network.
Telus is also investing in its non-core subsidiaries that have the potential to drive strong revenue growth in the coming years. Telus is buying LifeWorks for $2.9 billion in a deal that will expand Telus Health into new markets. Telus Agriculture is growing as well.
The bottom line on top passive-income stocks for retirees
Royal Bank and Telus are top Canadian dividend stocks that look undervalued right now and should continue to raise their distributions at a steady pace. If you have some cash to put to work in a self-directed TFSA focused on passive income, these stocks deserve to be on your radar.
