A market correction can be tough to watch, but buy-and-hold investors who are building retirement portfolios can take advantage of dips to acquire top TSX dividend stocks at undervalued prices for their self-directed Registered Retirement Savings Plan (RRSP) or Tax-Free Savings Account (TFSA).
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TD Bank
TD Bank (TSX:TD) already looks cheap, trading near $83 per share right now compared to $93 in February and more than $108 in early 2022.
The decline in bank stocks over the past 18 months is largely due to rising recession fears. The high-profile failure of a handful of U.S. regional banks a few months ago has not helped bolster investor sentiment.
Headwinds are on the horizon, but Canada’s large banks have adequate capital to ride out some rough times. TD actually has the largest capital cushion after it decided to abandon its US$13.4 billion all-cash takeover of First Horizon. TD finished fiscal second quarter (Q2) of 2023 with a common equity tier-one (CET1) ratio of more than 15%. That is significantly above the cautious 11.5% the regulator is asking Canadian banks to have by the end of this year.
In fact, TD is sitting on too much cash, and this is a reason the stock is out of favour. Near-term earnings growth won’t meet previous guidance of 7-10% due to the cancelled First Horizon deal. TD will now take a slower approach to expanding the American business by building the branch network organically.
TD will also use some of the extra cash to buy back stock. As a way to reward shareholders for their patience, management might decide to announce an increase to the base dividend or a bonus dividend in the coming months. Another acquisition in a different market is also possible while bank valuations are under pressure.
TD has a great track record of raising the distribution with a compound annual dividend-growth rate averaging better than 10% over the past quarter century. Investors who buy the stock at the current price can get a 4.6% dividend yield.
Enbridge
Imagine receiving a 7.25% yield on a stock that has increased the dividend annually for 28 years. That’s exactly what investors get from Enbridge (TSX:ENB).
Soaring interest rates are driving up borrowing costs for capital-intensive businesses like pipeline companies and utilities. This will put a pinch on cash available for distributions. The jump in rates paid on Guaranteed Investment Certificates (GICs) might also be luring funds away from Enbridge and its high-yield peers.
On the positive side, Enbridge expects adjusted earnings per share and distributable cash flow to grow in the coming years, supported by the $17 billion capital program.
If you are searching for quality passive income, Enbridge looks cheap today at below $49 at the time of writing compared to $59 in June last year.
The bottom line on top dividend stocks
TD Bank and Enbridge pay attractive dividends that should continue to grow. If you have some cash to put to work in a self-directed retirement fund, these stocks deserve to be on your radar.
