Contrarian investors have a chance to buy top TSX dividend stocks at undervalued prices right now for a self-directed Registered Retirement Savings Plan (RRSP) focused on generating attractive total returns.
BCE
BCE (TSX:BCE) is a very different business than it was 20 years ago, but the reason for owning the stock hasn’t changed. The company continues to generate reliable revenue and growing free cash flow from essential services. In the past, the money came from wireline telephone connections and lucrative long-distance charges. Today, BCE delivers broadband internet, TV, and communications services across its mobile, wireline, and satellite networks.
BCE also owns retail locations, offers security services, and boasts a growing media business that includes a television network, specialty channels, radio stations, and interests in pro sports teams.
The stock trades near $60 per share at the time of writing compared to $73 last April.
The pullback is due to rising recession fears and the negative impact higher interest rates will have on earnings. It is true that rising borrowing costs are expected to hit profits in 2023 and an economic downturn could hurt device sales and reduce ad spending in the media group. However, BCE still expects revenue and free cash flow to expand in 2023.
Investors who buy the stock at the current level can get a 6.4% dividend yield.
Fortis
Fortis (TSX:FTS) owns $64 billion in utility assets across Canada, the United States, and the Caribbean. Nearly all of the revenue comes from regulated businesses, such as power generation, electricity transmission, and natural gas distribution. Homeowners and businesses need to keep the lights on and heat their buildings in all economic circumstances, so Fortis should be a good stock to own during an economic downturn.
The board raised the dividend in each of the past 49 years. At the time of writing, investors can pick up a 4% dividend yield.
Fortis is above the 12-month low around $49 it hit in October, but at the current price of $57 it should be attractive and is still down from the $65 it reached in May last year.
Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS) is arguably a contrarian pick today. Canada’s number four bank by market capitalization has underperformed its peers in the past five years, and the large international operations located in the Pacific Alliance countries of Mexico, Peru, Chile, and Colombia likely make the stock more risky in the event there is a severe global recession.
That being said, the stock looks cheap at just 9.3 times trailing 12-month earnings and offers a dividend yield above 6%. The payout should be safe, and Bank of Nova Scotia could change its strategic focus under the new chief executive officer over the next few years.
Volatility should be expected, but you a least get paid well while you ride out the turbulence and wait for a rebound.
The bottom line on top Canadian dividend stocks
BCE, Fortis, and Bank of Nova Scotia pay attractive dividends that should continue to grow. If you have some cash to put to work in a self-directed RRSP, these stocks appear cheap today and deserve to be on your radar.
