Canadians are using their self-directed Tax-Free Savings Account (TFSA) and Registered Retirement Savings Plan (RRSP) to build portfolios of TSX stocks and fixed-income investments to deliver reliable passive income and attractive total returns.
Stock prices can decline and climb, so risk is always involved. However, good dividend-growth stocks tend to move higher over time and buying these stocks on big declines has historically proven to be a savvy move for patient investors.
TD Bank
TD (TSX:TD) made headlines in recent months when it cancelled a planned US$13.3 billion all-cash acquisition in the United States. The purchase of First Horizon, a regional bank with more than 400 branches, would have vaulted TD into a top-six position in the American market.
TD cited regulatory issues as the reason for terminating the deal. Investors are probably relieved. TD had agreed to pay US$25 per share for First Horizon. The stock currently trades for about half that price.
The downside for TD is a loss of anticipated revenue and profits. As a result, TD said it would no longer meet previous guidance for adjusted earnings growth of 7-10% in 2023. The positive for shareholders is that TD now has a war chest of excess cash to deploy.
TD will maintain a comfortable capital position to ride out any potential economic turbulence that could arise as interest rates push over-leveraged commercial and residential customers into default. The bank is using some of the extra funds to buy back stock and intends to grow the American business organically by opening new branches in target markets.
An increase to the base dividend or a one-time bonus payout could also be on the way.
TD trades near $84 per share at the time of writing. That’s off the 12-month low around $76 but still way down from the $93 the stock fetched in February.
Investors who buy the dip can get a 4.5% yield right now and wait for the bank sector to recover.
Fortis
Fortis (TSX:FTS) has increased its dividend in each of the past 49 years and intends to boost the distribution by at least 4% annually through 2027. Management has projects under consideration in addition to the current $22.3 billion capital program that could extend the guidance.
Fortis operates $65 billion in utility businesses located in Canada, the United States, and the Caribbean. The company gets nearly all of its revenue from rate-regulated operations. This normally makes cash flow predictable and reliable. The assets produce power, transmit electricity, and distribute natural gas, so the revenue streams should hold up well during challenging economic times due to the essential nature of the services.
Fortis trades near $56 per share compared to more than $64 at the peak last year.
The dividend yield might be lower than what you can get from other dividend stocks, but the distribution-growth guidance and the long-term total returns make the stock a top pick for retirement investors.
The bottom line on great dividend stocks to buy on dips
TD Bank and Fortis are good examples of solid dividend stocks that should continue to grow their payouts and deliver attractive total returns. If you have some cash to put to work in a self-directed retirement fund, these stocks deserve to be on your radar.
