A market correction is difficult to watch if you have a self-directed Registered Retirement Savings Plan (RRSP) portfolio full of stocks, but pullbacks also give investors a chance to put new cash to work in top dividend payers that can deliver great yields and strong total returns over the long run.
TD Bank
TD (TSX:TD) is Canada’s second-largest bank by stock valuation with a current market capitalization of close to $147 billion. The stock trades near $81 at the time of writing. That’s off the 12-month low, but still down from $93 in February this year and $108 in early 2022.
TD recently cancelled its planned US$13.4 billion takeover of First Horizon, a regional bank in the United States with more than 400 branches located primarily in the southeastern part of the country. The deal would have made TD a top-six bank in the American market. Management cited regulatory hurdles, as the reason for ending the acquisition process. TD had agreed to pay US$25 per share for First Horizon. The stock currently trades for less than US$12 per share, so TD appears to have avoided a bad deal, or at least one that would have been viewed as expensive.
TD now has a war chest of excess cash on hand to help it ride out an economic downturn. Management didn’t announce a dividend hike when the first-quarter (Q1) 2023 results came out, but investors could see a nice increase to the base distribution in the coming months. TD might also decide to pay a special bonus dividend, buy back more stock while it is cheap, or even take a run at another acquisition target.
At the current share price, investors can pick up a 4.75% dividend yield. Buying TD stock on big pullbacks has historically turned out to be a profitable move for patient investors.
Telus
Telus (TSX:T) doesn’t own a media division, so the communications giant isn’t being hit by some of the same challenges that face its Canadian peers. Investments have instead gone into subsidiaries that focus on using digital solutions to boost efficiency in the health sector and the food supply chain.
Telus Health initially focused on providing digital solutions for doctors, hospitals, and insurance firms. The $2.3 billion acquisition of LifeWorks last year added a global player providing digital services to businesses with employee benefits plans. Telus Health has the potential to become a meaningful contributor to revenue growth in the coming years.
Telus Agriculture has expanded to include the entire consumer goods value chain in its goal of helping make the process of getting food from the supplier to store shelves more efficient.
The core wireless wireline internet subscription businesses remain very profitable and have revenue streams that should be solid through an economic downturn due to their essential nature. Telus will see expenses rise this year due to higher debt costs connected to the steep increase in interest rates, but earnings before interest, taxes, depreciation, and amortization are expected to grow. Free cash flow is also expected to rise, as Telus spends less on capital projects.
Telus typically raises the dividend by 7-10% annually. The stock is below $26 at the time of writing compared to a high around $34 last year. Investors who buy the dip can get a 5.65% dividend yield.
The bottom line on top stocks for RRSP investors
Additional downside is certainly possible, but TD and Telus already look oversold and pay attractive dividends that should continue to grow. If you have some cash to put to work in a self-directed RRSP, these stocks deserve to be on your radar.
