The latest leg of the market correction is giving buy-and-hold retirement investors a chance to acquire top TSX dividend stocks at undervalued prices for self-directed Registered Retirement Savings Plan (RRSP) portfolios focused on total returns.
TC Energy
TC Energy (TSX:TRP) is a major player in the North American energy infrastructure industry with more than $100 billion in assets located in Canada, the United States, and Mexico. The core business is focused on natural gas with 93,000 km of natural gas pipelines and 650 billion cubic feet of natural gas storage capacity.
TC Energy also owns oil pipelines and power-generation facilities.
Energy infrastructure stocks peaked in early June last year and have been on a downward trend for most of the past 12 months. Investors might be concerned that the steep rise in interest rates will drive up borrowing costs. The industry is capital intensive and infrastructure companies normally use debt fund part of their capital programs. The market could also be worried that a severe recession is on the way that would potentially hit oil and gas demand.
TC Energy is also out of favour as a result of skyrocketing costs on a major project. The Coastal GasLink pipeline will cost at least $14.5 billion, which is more than double the original budget. Fortunately, the development is nearly 90% complete.
TC Energy trades near $54 per share at the time of writing compared to $74 around this time last year.
Near-term volatility should be expected, but TC Energy now appears oversold. The company’s $34 billion capital program is expected to drive revenue and cash flow growth that can support targeted annual dividend increases of at least 3%. TC Energy has increased the payout annually for more than 20 years.
Natural gas demand is expected to grow considerably in the coming years, as countries switch to the fuel from coal and oil to generate electricity. International demand for North American liquified natural gas is already rising quickly. This all bodes well for TC Energy.
Investors who buy TRP stock at the current level can get a 6.9% dividend yield.
Bank of Montreal
Bank of Montreal (TSX:BMO) is Canada’s third-largest bank with a current market capitalization near $81 billion. The stock trades near $115 per share at the time of writing compared to $136 in February.
The failure of some regional banks in the United States over the past few months has rattled bank investors. The situation has calmed down a bit, but markets are concerned that more trouble is on the way. Bank of Montreal completed its US$16.3 billion takeover of Bank of the West in February, shortly before the meltdown in the share prices of small- and medium-sized American banks. Investors are wondering if Bank of Montreal overpaid for Bank of the West.
The assets would likely be cheaper to buy today, but investors should still see long-term benefits from the deal. Bank of the West adds more than 500 branches to BMO Harris Bank and gives Bank of Montreal a strong foothold in California.
Bank of Montreal has paid a dividend annually since 1829. The board just raised the quarterly dividend by nearly 3% to $1.47 per share. That’s good for an annualized yield of 5.1% at the time of writing.
The bottom line on top RRSP stocks
TC Energy 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 look oversold today and deserve to be on your radar.
