Canadian savers with cash to invest inside their Registered Retirement Savings Plan (RRSP) can take advantage of the market correction to buy top TSX dividend stocks at undervalued prices for a self-directed retirement fund.
Telus
Telus (TSX:T) traded for more than $33 per share a year ago. Today, investors can buy the stock for about $28.
The pullback appears overdone when you consider the fact that Telus delivered solid 2022 results. Cash flow from operations rose close to 10% and free cash flow surged 64% to almost $1.3 billion compared to 2021.
Telus should be in a good position to continue raising the dividend in its target range of 7-10% per year, even if the economy goes through a recession in 2023 or 2024. The company expects to spend $1 billion less on capital projects in 2023 after largely completing the copper-to-fibre transition. Telus is still spending heavily on its 5G mobile network, but more cash flow should be available for distributions and share buybacks in the next few years. Free cash flow is projected to hit $2 billion in 2023.
Telus gets most of its revenue from essential mobile and internet subscription services. It also has diversification through Telus Health, a global provider of digital health solutions to companies with employee health plans. Another subsidiary, Telus Agriculture and Consumer Goods, provides digital solutions to help farmers and the entire grocery food chain operate more efficiently. Health services revenue increased 75% in 2022 and Telus Agriculture and Consumer Goods revenue rose 24% last year.
Investors who buy Telus stock at the current level can get a solid 4.95% dividend yield.
Bank of Montreal
Bank of Montreal (TSX:BMO) trades near $123 per share at the time of writing compared to more than $150 in early 2022.
Investors who had the courage to buy the stock in March 2020 during the worst part of the pandemic crash are still sitting on 100% gains, despite the pullback over the past year due to fears about rising interest rates, a possible recession, and recent failures in the bank sector.
Bank of Montreal used the large cash hoard it built up during the pandemic to make a major acquisition in the United States. The US$16.3 billion takeover of Bank of the West closed just before the bank sector tanked in March. Investors might be wondering if Bank of Montreal paid too much for the business, but the move should benefit shareholders in the long run.
Ongoing volatility in bank stocks should be expected in the coming months, and it wouldn’t be a surprise to see Bank of Montreal retest the 12-month low around $114. However, the stock looks cheap right now and provides a 4.6% dividend yield at the current share price, so you get paid well to wait for the rebound if more downside occurs.
The bottom line on top stocks for RRSP investors
Buying quality dividend stocks on dips requires the patience to ride out additional turbulence, but the strategy can boost long-term returns in a retirement portfolio.
Telus and Bank of Montreal pay attractive dividends that should be safe and are expected to continue to grow over time. If you have some RRSP cash to put to work, these stocks look undervalued today and deserve to be on your radar.
