The market pullback is providing Tax-Free Savings Account (TFSA) and Registered Retirement Savings Plan (RRSP) investors with an opportunity to buy top TSX dividend stocks at cheap prices.
It takes courage to buy stocks during market corrections. Share prices can continue to slide before they recover and some never bounce back. However, companies that have long track records of dividend growth tend to rebound and eventually hit new highs.
Fortis
Fortis (TSX:FTS) has $65 billion in utility assets located across Canada, the United States, and the Caribbean. Nearly all of the revenue comes from rate-regulated operations that include power-generation facilities, electricity transmission networks, and natural gas distribution utilities. Homes and businesses need electricity and natural gas regardless of the state of the economy. This should make Fortis a good stock to buy if you are concerned about the risk of an economic downturn.
Fortis trades near $56 per share at the time of writing compared to more than $64 at the peak last year. The stock was actually cheaper last fall, but investors should still consider adding Fortis at the current level.
Fortis is working on a $22.3 billion capital program that is expected to boost the rate base by a compound annual rate of about 6% through 2027. This should support planned dividend increases of 4-6% per year. Fortis raised the dividend in each of the past 49 years, so investors should feel comfortable with the guidance.
At the time of writing, the stock provides a 4% dividend yield.
Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS) recently increased its quarterly dividend from $1.03 to $1.06 per share. The decision to hike the payout should be a good indication to investors that the management team isn’t overly concerned about the bank’s ability to deliver solid revenue and profits in the medium term.
Bank stocks have been volatile in the past year. Soaring interest rates are starting to drive up provisions for credit losses (PCL), as banks set aside more cash to cover potential loan defaults. Businesses and households with too much debt are going to feel the pinch and banks could see losses surge if the economy goes into a deep decline and unemployment jumps.
It could be 12-18 months before we see the full impact of the aggressive rate hikes by the Bank of Canada and the U.S. Federal Reserve. That being said, bank stocks already appear priced for a bad situation, and there is a good chance that the economy will actually only go through a mild and short recession.
Bank of Nova Scotia trades near $66 per share compared to more than $90 in early 2022. Investors who buy the pullback can now get a 6.4% dividend yield.
The bottom line on top dividend stocks
Fortis and Bank of Nova Scotia pay attractive dividends that should continue to grow. If you have some cash to put to work in a retirement portfolio, these stocks deserve to be on your radar.
