Stocks are bouncing back after the latest market correction, but investors can still find top TSX dividend stocks trading at cheap prices to buy inside their self-directed Tax-Free Savings Account (TFSA) portfolios targeting reliable and growing passive income.
TD (TSX:TD) trades for close to $82.50 per share at the time of writing compared to $93 in February and $109 in early 2022.
The wild ride over the past few years is due to a number of factors. All banks saw deposits soar through the pandemic, as government aid doled out to households and businesses in Canada and the United States largely went straight into savings accounts. This helped avoid a wave of loan defaults that could have occurred without the interventions. Bans on dividend increases and the halt placed on share buybacks further buffered the capital positions of Canadian and American banks.
By early 2022, however, it became evident that inflation was going to start to be a major problem and the end of covid assistance payments would mean some businesses and consumers would start to face financial difficulties. Investors began to book profits on bank stocks in February last year and the selling continued to mid-summer, as recession fears started to emerge.
The rebound in TD’s stock from July 2022 to February 2023 was partly due to bargain hunting and likely also driven by the realization that the company continued to generate strong profits and would probably benefit from gains in net interest margins as interest rates soared.
TD’s planned US$13.4 billion takeover of First Horizon, a regional bank in the U.S. southeastern states, has recently soured the party. The meltdown in the bank sector in March occurred as a result of the failure of regional banks in the United States. TD agreed to buy First Horizon for US$25 per share, but the stock currently trades for about US$18.50.
This is largely why TD’s stock is down so much over the past two months.
Buying TD on big dips has historically proven to be a savvy move, and this time shouldn’t be different. Investors who buy at the current level can get a 4.7% yield and wait for the rebound. TD has a compound annual growth rate of better than 10% over the past 25 years.
The First Horizon deal will likely go through at a lower price or simply fall apart. Regardless of the outcome, the result should be positive for the stock over the medium term.
Enbridge (TSX:ENB) increased its dividend in each of the past 28 years. The company is working on a capital program worth$18 billion that will help drive revenue and cash flow growth to support the payout. In addition, Enbridge’s market capitalization of about $108 billion gives it the financial firepower to make strategic acquisitions.
Fuel demand is expected to grow in both North America and abroad in the next few years. Air travel will continue to recover, even if there is a recession and companies are increasingly telling workers they need to get back in the office. This is going to push up demand for gasoline, as commuters get back on the highways. In fact, traffic could overtake pre-pandemic levels, even if people have hybrid work agreements. Those who used to travel on public transit might simply drive on the days they have to commute.
Enbridge trades near $53 at the time of writing. That’s down from the 2022 high around $59.50, so investors have a chance to buy Enbridge on a pullback and get a 6.7% dividend yield.
The bottom line on top stocks for passive income
TD and Enbridge pay attractive dividends that should continue to grow. If you have some cash to put to work in a TFSA focused on passive income, these stocks deserve to be on your radar.