RRSP Top Picks: 2 Oversold TSX Dividend Stocks to Buy Now

RRSP investors have a chance to buy top TSX dividend stocks at cheap prices today.

| More on:

RRSP investors are searching for undervalued dividend stocks to buy today that can deliver attractive long-term total returns in self-directed portfolios.

Canadian National Railway

CN (TSX:CNR)(NYSE:CNI) trades near $148 per share at the time of writing compared to the 2022 high around $170. Buying CN stock on dips has historically proven to be a savvy move for RRSP investors.

A $10,000 RRSP investment in CN stock 25 year ago would be worth more than $390,000 today with the dividends reinvested.

CN’s new CEO is focused on driving efficiency in the business and maximizing returns for investors. The board raised the dividend by 19% for 2022. Another generous payout increase is probably on the way for 2023. CN has one of the best dividend-growth track records in the TSX Index since the company went public more than 25 years ago.

CN is also returning capital to shareholders through an aggressive share-buyback plan. The company can repurchase up to 42 million shares, or about 6.8% of the outstanding stock, over a 12-month period under the current normal course issuer bid (NCIB). Share buybacks result in more profits being available for remaining shareholders. They also help boost per-share earnings results that can lead to upward momentum in the share price.

CN generates strong free cash flow and enjoys a wide competitive moat. The railway is the only player in the industry with tracks connecting ports on three coasts. CN’s dividend yield might appear a bit low at just 2%, but investors should focus more on the dividend growth and the capital appreciation.

Royal Bank

Royal Bank (TSX:RY)(NYSE:RY) trades for $123 per share at the time of writing compared to more than $149 near the beginning of this year. The steep drop is part of a broad selloff in financial stocks that has occurred due to rising recession fears.

Investors are concerned that rising prices for essentials like food and gas will combine with soaring interest rates to hammer households in the coming months, as they battle the effects of high inflation and a jump in loan expenses. Discretionary spending could grind to a halt, leading to a recession and a reversal in the jobs market.

Royal Bank’s analysts are predicting a short and mild recession next year. Economists, on average, seem to be pegging the odds of a recession at 50%. If things get really ugly and defaults on loans and mortgages soar, Royal Bank and its peers will likely take a hit. That being said, the bank has a strong capital position to ride out any turbulence, and the situation would have to be quite bad before there is a meaningful impact on the bank.

Royal Bank generated strong results in the first half of fiscal 2022, and the bank is on track to top its strong 2021 earnings results.

The pullback in the stock price appears overdone. Investors can now pick up a decent 4% dividend yield and wait for the next payout increase to boost the base return. The board raised the dividend by 11% late last year and increased it by another 7% when Royal Bank reported fiscal Q2 2022 earnings.

A $10,000 investment in RY stock 25 years ago would be worth more than $170,000 today with the dividends reinvested.

The bottom line on top TSX stocks to buy now

CN and Royal Bank are industry leaders with long track records of dividend growth. If you have some cash to put to work in a self-directed RRSP, these stocks deserve to be on your radar.

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.

The Motley Fool recommends Canadian National Railway. Fool contributor Andrew Walker owns shares of Canadian National Railway and Royal Bank.

More on Dividend Stocks

profit rises over time
Dividend Stocks

A Dividend Giant I’d Buy Over TD Stock Right Now

TD stock has long been one of the top dividend stocks for investors to consider, but that's simply no longer…

Read more »

analyze data
Dividend Stocks

Top Financial Sector Stocks for Canadian Investors in 2025

From undervalued to powerfully bullish, quite a few financial stocks might be promising prospects for the coming year.

Read more »

Canada national flag waving in wind on clear day
Dividend Stocks

3 TFSA Red Flags Every Canadian Investor Should Know

Day trading in a TFSA is a red flag. Hold index funds like the Vanguard S&P 500 Index Fund (TSX:VFV)…

Read more »

Paper Canadian currency of various denominations
Dividend Stocks

1 Magnificent Canadian Stock Down 15% to Buy and Hold Forever

Magna stock has had a rough few years, but with shares down 15% in the last year (though it's recently…

Read more »

Man holds Canadian dollars in differing amounts
Dividend Stocks

Earn Steady Monthly Income With These 2 Rock-Solid Dividend Stocks

Despite looming economic and geopolitical uncertainties, these two Canadian monthly dividend stocks could help you generate reliable income in 2025…

Read more »

A worker gives a business presentation.
Dividend Stocks

2024’s Top Canadian Dividend Stocks to Hold Into 2025

These top Canadian dividend stocks are worth holding into 2025 to generate steady and growing passive income.

Read more »

A train passes Morant's curve in Banff National Park in the Canadian Rockies.
Dividend Stocks

1 Magnificent Canadian Stock Down 12% to Buy and Hold Forever

This top stock may be down 12% right now, but don't see that as a problem. See it as a…

Read more »

Confused person shrugging
Dividend Stocks

Passive Income: How Much Do You Need to Invest to Make $625 Per Month?

This retirement passive-income stock proves why investors need to always take into consideration not just dividends but returns as well.

Read more »