Self-directed investors can take advantage of the market correction to buy top TSX dividend stocks for their self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolios.
DRIP 101
A popular strategy for building a retirement fund involves buying dividend-growth stocks and using the dividends to buy even more shares. The effect on the portfolio can be substantial over time, especially when the dividend payment increases steadily and the share price drifts higher.
Companies often set up a dividend-reinvestment plan (DRIP) to encourage investors to use the dividends to buy more stock instead of taking the cash. The attraction for the company is that it retains cash that can be used to fund capital programs, acquisitions, or reduce debt.
Some DRIPs in Canada even offer investors a discount up to 5% on the share price. This can boost returns for investors. Another benefit is that there is no commission or fee charged to purchase the shares.
Investors who hold their stock in a self-directed brokerage account can ask their service provider to set up the DRIP automatically. In this situation, whole shares are usually purchased, so the extra cash goes into the account.
Telus
Telus (TSX:T) has increased the dividend annually for more than two decades, with hikes normally in the 7-10% range. The stock price has pulled back considerably over the past year, giving investors a chance right now to pick up a 6% dividend yield. At the time of writing, Telus trades near $24 per share compared to more than $34 at the 2022 high.
Rising interest rates are to blame for most of the downturn in the past 12 months. Recent bad news from a Telus subsidiary, Telus International, triggered the latest leg to the downside. Ongoing volatility should be expected in the near term, but Telus looks oversold at this point.
Management still expects operating revenue and earnings before interest, taxes, depreciation, and amortization (EBITDA) to increase at a healthy clip in 2023. This should support ongoing dividend growth.
Enbridge
Enbridge (TSX:ENB) has increased its dividend in each of the past 28 years. The trend should continue, driven by the current $17 billion capital program and any strategic acquisitions that the company makes in the coming years.
Management is targeting earnings-per-share growth of 4% through 2025 and 5% beyond. Distributable cash flow is expected to increase by 3% through 2025 and 5% in the following years. Enbridge recently announced a new deal with oil producers to maintain high volumes across the Mainline pipeline for several years. This should make revenue and cash flow more predictable.
At the time of writing, Enbridge trades for less than $49 per share compared to $59 in June last year. Investors can now get a 7.3% dividend yield from ENB stock.
Fortis
Fortis (TSX:FTS) increased its dividend in each of the past 49 years. The yield is only about 4%, but the board intends to boost the distribution by at least 4% annually through 2027. Fortis has a $22.3 billion capital program that will raise the rate base by a compound annual rate of about 6% over this timeframe.
Management has other projects under consideration, and Fortis isn’t shy when it comes to driving additional growth through strategic acquisitions. FTS stock isn’t as cheap as it was at the 12-month low last fall, but it still looks attractive right now for a buy-and-hold retirement portfolio.
The bottom line on top Canadian dividend stocks
Telus, Enbridge, and Fortis pay attractive dividends that should continue to grow. If you have some cash to put to work in a TFSA or RRSP, these stocks deserve to be on your radar.
