Canadian savers are using their Tax-Free Savings Account (TFSA) and Registered Retirement Savings Plan (RRSP) to build self-directed portfolios of top TSX dividend stocks. The market correction is giving investors a chance to buy great Canadian dividend stocks at discounted prices.
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Telus
Telus (TSX:T) trades for close to $27 per share at the time of writing compared to more than $34 at the high point last year.
Rising interest rates are making debt more expensive, and this could reduce cash available for distributions. Telecom companies use debt as part of their funding strategy to pay for capital investments, so the steep rise in interest rates over the past year might be one reason investors have pushed down the share price. Recession fears are also at play, although Telus gets most of its revenue from recession-resistant subscriptions to its internet and mobile services.
Telus generated solid first-quarter (Q1) 2023 results. Operating revenue increased 15.7% compared to Q1 2022 and adjusted earnings before interest, taxes, and depreciation (EBITDA) rose 10.7%. Free cash flow jumped nearly 29% to $535 million. This is important for dividend investors who look for businesses with reliable streams of free cash flow to support payout increases.
Adjusted net income slipped by 7% compared to the same quarter last year largely due to a jump in operating expenses of nearly 23%.
For the full year, Telus expects adjusted EBITDA to rise at least 9.5% and free cash flow is expected to hit $2 billion. That’s probably more important to focus on than the dip in adjusted earnings. As such, the pullback in the stock price appears overdone.
Telus typically raises the dividend by 7-10% per year. At the time of writing, the stock provides a yield of 5.3%.
TD Bank
TD (TSX:TD) trades for close to $82 per share at the time of writing. That’s down from the 2022 high around $109.
The stock has been in the headlines a lot over the past year. TD recently abandoned its US$13.4 billion effort to buy First Horizon, a regional bank in the southeastern part of the United States. Regulatory issues apparently led to the collapse of the deal. Shareholders are probably relieved the takeover didn’t go through after the chaos that has hit the American banking sector since March.
TD is now sitting on a massive war chest of excess cash that had been earmarked for the acquisition. Surplus cash makes TD a safer bet heading into a possible recession, but it also limits growth potential, and this might be why the stock price has not moved much since the bank called off the First Horizon deal.
Investors could see an aggressive share-repurchase plan emerge and potentially a nice bonus dividend or a generous increase to the base payout. Analysts have mixed views on whether TD will be able to target another large takeover south of the border, so a deal in another market could be an option while bank valuations are down.
Buying TD stock on big dips has historically proven to be a winning strategy over the long term. Compound annual dividend growth averaged more than 10% over the past 25 years, and more gains in the payout should be on the way.
At the time of writing, the stock provides a 4.7% dividend yield.
The bottom line on top dividend stocks for self-directed investors
Telus and TD are top TSX stocks with attractive dividends that should continue to grow. If you have some cash to put to work, these stocks deserve to be on your radar today.
