Self-directed Tax-Free Savings Account (TFSA) and Registered Retirement Savings Plan (RRSP) investors are using top TSX dividend stocks to build diversified retirement portfolios. The market correction over the past year is giving investors who missed the rally off the 2020 crash another chance to buy great Canadian dividend-growth stocks at cheap prices.
TD Bank
TD (TSX:TD) has delivered a compound average annual dividend-growth rate of about 10% over the past quarter century. The board hasn’t increased the payout yet in calendar 2023, but investors should see a raise announced at some point before the end of the year.
TD stock is finally moving higher, as bargain hunters realize the share price dropped too far. Investors are currently paying about $85 per share to buy TD. This is off the 12-month low of around $76 but still way down from the $108 TD reached in early 2022.
TD won’t hit its previous guidance for 2023 adjusted earnings growth of 7-10% after ending the planned US$13.4 billion acquisition of First Horizon, a U.S. regional bank with more than 400 branches located in the southeastern part of the country. Management at TD Bank will now grow the existing American business by opening new branches in the key markets it wants to target.
TD’s common equity tier-one (CET1) ratio at the end of the fiscal second quarter (Q2) of 2023 was 15.3%. This means the bank is sitting on a war chest of excess cash. That makes TD very safe to buy if you are worried that a deep and prolonged recession is on the way. In the near term, however, the excess cash is one reason the stock is out of favour. Banks need to deploy cash to drive revenue and profit growth. Until the extra funds start working for the bank, the shares might remain unloved.
Contrarian investors can take advantage of the pullback to buy TD at an attractive level and pick up a solid 4.5% dividend yield. Buying TD stock on big dips has historically proven to be a savvy move for patient investors.
Fortis
Fortis (TSX:FTS) should be a good stock to own during a recession. The company operates $65 billion in utility assets in Canada, the United States, and the Caribbean. A full 99% of the revenue is from rate-regulated businesses, so cash flow tends to be predictable and reliable. Power-generation facilities, electricity transmission networks, and natural gas distribution utilities comprise most of the assets.
Fortis grows by making acquisitions and through organic development projects. The company hasn’t done a big deal for a few years, but is currently working on a $22.3 billion capital program that will increase the rate base substantially through 2027. The resulting boost to cash flow is expected to support planned annual dividend hikes of at least 4% over that timeframe.
Fortis trades below its 2022 high and currently offers a 4% dividend yield. The board has increased the dividend for 49 consecutive years.
The bottom line on top TSX dividend stocks
TD and Fortis pay attractive dividends that should continue to grow. If you have some cash to put to work in a self-directed TFSA or RRSP, these stocks look cheap today and should be on your radar for a buy-and-hold retirement portfolio targeting total returns.
