Canadian investors can take advantage of the market correction to buy great TSX dividend stocks at discounted prices for a self-directed Registered Retirement Savings Plan (RRSP).
Buying stocks during a pullback is a contrarian move, and share prices can go lower than expected in the near term. However, good stocks with strong track records of dividend growth tend to rebound on a market recovery and buying the dips can boost long-term total returns.
TC Energy
TC Energy (TSX:TRP) has increased the dividend for 23 consecutive years. Management expects the $34 billion capital program to drive enough revenue and cash flow growth to support annual dividend increases of at least 3% over the medium term.
Despite the positive guidance, TRP stock is down considerably over the past year. At the time of writing, TC Energy trades below $52 per share compared to more than $73 at the high point in 2022.
The pullback has occurred amid a broader correction in the energy infrastructure sector. Pipeline companies use debt to fund part of their capital programs, and the steep rise in interest rates over the past year is making borrowing more expensive.
TC Energy has also struggled with delays and rising expenses on a major project. The Coastal GasLink pipeline will bring natural gas from producers in northeastern British Columbia to a new liquified natural gas (LNG) facility being built on the BC coast. TC Energy now expects the final cost of the project to be at least $14.5 billion, which is more than double the initial budget.
At the time of the first-quarter (Q1) 2023 earnings release TC Energy said the Coastal GasLink development was 87% complete, so most of the surprises should now be in the rearview mirror, and shareholders can focus on the other growth initiatives.
Investors who buy TRP stock at the current level can get a 7.2% dividend yield.
Fortis
Fortis (TSX:FTS) isn’t as cheap as it was at the bottom of the 2022 correction, but the stock still trades well below the high it reached last year and looks undervalued. At the time of writing, Fortis trades near $56 per share. It was as high as $65 in the spring of 2022 before the utility sector sold off as the Bank of Canada and the U.S. Federal Reserve began raising interest rates.
Fortis operates $65 billion in utility assets located in Canada, the United States, and the Caribbean. The businesses include power-generation plants, electricity transmission networks, and natural gas distribution utilities. These are rate-regulated revenue streams that should be predictable and reliable in most economic conditions.
Fortis is working on a $22.3 billion capital program that is expected to increase the rate base by an average of 6% annually over five years. The resulting rise in revenue and cash flow should support planned dividend increases of at least 4% per year through 2027.
Fortis raised the dividend in each of the past 49 years. Investors who buy FTS stock at the current level can get a 4% dividend yield.
The bottom line on top RRSP stocks
TC Energy and Fortis pay attractive dividends that should continue to grow. If you have some cash to put to work in a self-directed RRSP, these stocks appear cheap right now and deserve to be on your radar.
