The decline in the shares of some of the top dividend stocks in the TSX is giving retirees and other income investors a chance to get great yields from stocks with reliable and growing distributions.
It takes courage to buy stocks during a correction and the share prices could go even lower, but the best companies tend to bounce back after a big pullback, adding to the return on the investment.
TD Bank
TD (TSX: TD) has the largest capital cushion among the big Canadian banks thanks to its recent decision to back out its planned US$13.4 billion takeover of First Horizon, a U.S. regional bank with more than 400 branches. Regulatory hurdles led to the cancellation of the deal. That might turn out to have been a blessing for TD investors. First Horizon now trades for less than half the price TD had initially agreed to pay.
The cash hoard gives TD an extra safety net to ride out potential financial and economic turbulence in the next couple of years. On the downside, TD will not hit its previous goal for 7-10% earnings growth due to the funds sitting on the sidelines instead of driving revenue growth. This is one reason why the stock is out of favour.
TD stock trades near $78 at the time of writing compared to $93 in February. Near-term volatility should be expected, but buying TD stock on big dips has always delivered good returns for patient investors over the past few decades.
Investors can take advantage of the depressed share price to pick up a solid 4.9% yield.
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TC Energy
TC Energy (TSX: TRP) has 93,000 km of natural gas pipelines and roughly 650 billion cubic feet of natural gas storage in Canada, the United States, and Mexico. The company also operates oil pipelines and power-generation facilities.
The world is keen to secure reliable supplies of natural gas from North American producers. Utilities are switching from coal and oil to natural gas to generate power. Natural gas emits less carbon dioxide than coal and oil when burned, so gas-fired power plants are viewed as key for countries as they transition to renewable energy.
TC Energy has the assets in place or under construction to help natural gas producers to get their product to both domestic and international buyers. The company is working through a $34 billion capital program that is expected to boost revenue and cash flow enough to support average annual dividend increases of at least 3% over the medium term. TC Energy’s Coastal GasLink project will eventually link natural gas producers to a new liquified natural gas (LNG) site on the coast of British Columbia. The pipeline is over budget due to a number of issues encountered in the past three years but is now nearly 90% complete.
TC Energy trades below $53 at the time of writing and provides a 7% dividend yield. The stock was above $70 last year, so there is decent upside potential.
The bottom line on top stocks for passive income
TD and TC Energy pay attractive dividends that should continue to grow. If you have some cash to put to work, these stocks deserve to be on your radar for a self-directed portfolio targeting passive income.
