The market correction is giving retirees and other Tax-Free Savings Account (TFSA) investors a chance to buy top TSX dividend-growth stocks at discounted prices. Stock pullbacks push up dividend yields and give new owners of the stocks a chance to generate attractive passive income with a shot at decent capital gains when the market rebounds.
TD Bank
TD (TSX:TD) trades for close to $82 per share at the time of writing. This is down from the 12-month high around $97 and a 2022 peak near $109.
The pullback that occurred in the past few months is due to fears that recent bank failures in the United States could be the beginning of widespread turmoil in financial markets. Regional banks, in particular, are taking a big hit amid concerns that deposit flight could cause more banks to go bust.
TD has a large presence in the United States and just backed out of a US$16.3 billion deal to acquire First Horizon, a regional bank with operations mainly located in the U.S. southeastern states.
Interestingly, TD stock has not moved much since the deal fell apart. Investors either anticipated the decision to drop the takeover, or the market is still concerned about other potential threats to the bank. The Canadian residential housing market and commercial property loans in both Canada and the United States are recently making headlines as potential trouble spots for banks in the next 12-18 months.
TD is now sitting on a mountain of excess cash, so there shouldn’t be any worries about the bank’s ability to ride out market turbulence. Investors are waiting to see, however, how management will deploy the cash hoard. Another acquisition could emerge, although the regulatory challenges that came up in the First Horizon deal could keep TD from taking a run at another American bank in the medium term. Shareholders might see the board ramp up share buybacks while the stock price is down. A boost to the base dividend or even a special distribution could also occur.
Near-term volatility should be expected, but income investors might want to start adding TD stock to their portfolios while it is out of favour. The bank remains very profitable and has raised the dividend by a compound annual rate of better than 10% since the 1990s. At the time of writing, TD stock offers a 4.7% dividend yield.
Canadian Natural Resources
Canadian Natural Resources (TSX:CNQ) is Canada’s largest energy company with a current market capitalization near $85 billion. The stock can make big moves when oil and natural gas prices go through steep declines or surges, as investors witnessed during the 2020 crash and subsequent rebound.
Dividend investors, however, should be comfortable owning CNRL through the market cycles. The board has increased the payout annually for the past 23 years with a compound annual growth rate of better than 20% over that timeframe.
CNRL is somewhat unique in the Canadian energy patch due to its diversified product portfolio and the flexibility it has to quickly move capital around the asset base. The company is widely known as an oil producer with oil sands, conventional heavy oil, light oil, and offshore oil holdings. CNRL is also a major producer of natural gas. With a strong balance sheet and 100% ownership of the majority of its assets, CNRL is able to acquire distressed asset at opportune times and is adept at allocating capital in a very efficient manner to take advantage of positive shifts in commodity prices.
Management used the cash windfall from high oil and natural gas prices in 2021 and 2022 to pay down debt, buy back stock, and boost dividends. The current quarterly dividend is $0.90 per share. That’s good for an annualized yield of 4.7% as of writing. Investors also received a $1.50 per share bonus distribution last August.
CNQ stock trades near $77 at the time of writing compared to the 12-month high around $88.
The bottom line on top TSX dividend stocks
TD and CNRL pay attractive dividends that should continue to grow. If you have some cash to put to work in a TFSA focused on dividends, these stocks deserve to be on your radar today.
