Canadian investors are constantly searching for ways to generate the highest return possible on their savings without taking on too much risk. The market correction over the past year has provided self-directed Registered Retirement Savings Plan (RRSP) investors with an opportunity to buy good TSX dividend stocks at discounted prices.
Telus (TSX:T) trades for close to $27.50 at the time of writing compared to $34.50 at the peak in 2022. The pullback looks overdone when you consider the quality of the communication provider’s revenue stream and the anticipated dividend growth over the medium term.
Telus just reported decent first-quarter (Q1) 2023 results. Record Q1 net customer additions helped drive a 15.7% increase in operating revenue. Adjusted earnings before interest taxes depreciation and amortization (EBITDA) increased 10.7% and free cash flow rose 28.9% to $535 million. Adjusted net income, however, slipped 7% compared to Q1 2022 due to higher debt costs and other expenses. The drop in adjusted net income led to a dip in the stock, but the reaction appears overdone.
Telus confirmed its full-year 2023 guidance for operating revenue growth of at least 11% and adjusted EBITDA growth of at least 9.5%. Free cash flow is expected to hit $2 billion. This is good news for dividend investors. Telus has a great track record of dividend growth and typically increases the distribution by 7% to 10% annually. Investors who buy the stock at the current price can get a 5.25% dividend yield.
Revenue from core mobile and internet service subscriptions should hold up well during a recession. Residential and commercial customers need these services regardless of the state of the economy. TV service revenue might be more at risk, but most people usually have this as part of a bundled package and are likely to cut other discretionary spending before giving up their entertainment.
Telus also has interesting subsidiaries, including Telus Health and Telus Agriculture and Consumer Goods that could become meaningful contributors to earnings growth in the coming years.
A $10,000 investment in Telus stock just 10 years ago would be worth more than $22,000 today with the dividends reinvested.
Bank of Montreal
Bank of Montreal (TSX:BMO) paid its first dividend in 1829, and investors have received a slice of the profits every year since that time. This is the kind of reliability dividend investors should search for when evaluating stocks for their retirement portfolios.
BMO stock trades below $118 per share at the time of writing compared to $136 in February.
The latest dip is largely due to the recent failures of some regional banks in the United States. Bank of Montreal actually completed its US$16.3 billion acquisition of California-based Bank of the West right before all the chaos hit the bank sector in March. Investors might be concerned that BMO paid too much for the acquisition, given the steep drop in the share prices of U.S. regional banks over the past two months.
Time will tell, but shareholders should see long-term benefits from the deal. California is a significant market, and the addition of Bank of The West expands BMO Harris Bank’s reach in the United States.
Additional near-term volatility is possible in the bank sector, but BMO stock already looks cheap, and you get paid a solid 4.9% yield to wait for the rebound.
A $10,000 investment in Bank of Montreal 10 years ago would be worth more than $28,000 today with the dividends reinvested.
The bottom line on top TSX dividend stocks to buy for total returns
Telus and Bank of Montreal 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 right now and deserve to be on your radar.