Canadian investors are using their Tax-Free Savings Account (TFSA) and Registered Retirement Savings Plan (RRSP) to create self-directed portfolios of stocks, Guaranteed Investment Certificates, and other investments. One popular strategy for building retirement wealth involves buying top TSX dividend stocks and using the distributions to acquire new shares.
This sets off a powerful compounding process that can turn modest initial investments into large savings over time. The pullback in the share prices of many great Canadian dividend stocks is giving new investors a chance to score some attractive deals.
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Enbridge
Enbridge (TSX:ENB) is a giant on the TSX with a current market capitalization of about $102 billion. At this size, it is hard to generate the kind of growth investors might see in emerging tech stocks, but Enbridge still finds ways to boost revenue and free cash flow to support its generous dividend.
The company has a $17 billion capital program on the go, and Enbridge possesses the financial firepower to make strategic acquisitions. For example, Enbridge purchased an oil export terminal for US$3 billion in 2021. The company then bought a U.S.-based developer of renewable energy projects last year. These two deals, along with the 30% stake Enbridge has taken in the new Woodfibre liquified natural gas (LNG) facility being built in British Columbia, indicate the areas Enbridge considers important for driving new revenue growth. Exports of North American oil and natural gas are expected to ramp up in the coming years. At the same time, the U.S. government is pushing for aggressive construction of renewable energy assets.
Enbridge trades near $50.50 at the time of writing compared to more than $59 in June last year. The drop appears overdone considering the anticipated earnings and distributable cash flow growth of at least 4% and 3%, respectively, over the next several years.
Enbridge has increased the dividend annually for nearly three decades. At the current share price, the stock provides a 7% dividend yield.
TD Bank
TD (TSX:TD) might be the safest bank stock to buy for investors who are worried that a deep recession could be on the way.
The bank is sitting on a massive pile of excess capital. This cash buffer provides extra protection in case things really get out of control in the financial markets in the next couple of years. In fact, TD’s common equity tier-one ratio of 15.3% (as of the fiscal second-quarter 2023 earnings statement) makes it the best-capitalized Canadian bank.
The cash hoard is the result of a cancelled acquisition. TD intended to buy First Horizon, a U.S. regional bank, for US$13.4 billion in an all-cash deal. Regulatory hurdles apparently led to the decision to back out of the purchase. As a result, TD now has several options to deploy the extra funds. The bank could give investors a bonus dividend or even boost the regular distribution. TD might also look for other takeover opportunities while bank stocks are out of favour.
Regardless of what happens, buy-and-hold investors should consider nibbling on TD stock while it trades well below its 12-month and all-time highs. Investors can buy TD for close to $79 per share at the time of writing compared to more than $100 in March last year. The current dividend yield is about 4.8%.
The bottom line on top stocks to buy for retirement
Enbridge and TD are top TSX dividend stocks that offer attractive yields today for investors seeking passive income or total returns. If you have some cash to put to work, these stocks deserve to be on your radar.
