The market correction in certain sectors of the TSX over the past year is serving up good deals for investors who are using dividend stocks to build retirement savings inside their self-directed Tax-Free Savings Account (TFSA) and Registered Retirement Savings Plan (RRSP).
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Fortis
Fortis (TSX:FTS) only offers a 4% yield right now, but the company has increased its dividend annually for nearly five decades and is providing yearly dividend-growth guidance of at least 4% through 2027.
This is the kind of performance investors like to see when picking top dividend stocks for a retirement fund. One popular strategy to build wealth involves using the dividends to acquire new shares. This can often be done using the dividend-reinvestment plan (DRIP) offered by a company where there is no fee for buying the new shares, and investors might even get a discount, depending on the DRIP terms. Fortis, for example, gives DRIP investors a discount of 2% on the shares purchased using dividends.
Fortis trades near $55.50 per share compared to more than $64 at one point last year.
FTS stock isn’t as cheap as it was in October 2022 but still looks attractive for a buy-and-hold portfolio.
The company gets nearly all of its revenue from rate-regulated assets. Fortis has a $22.3 billion capital program on the go to support the targeted dividend increases and has other projects on the drawing board that could get the green light and drive additional cash flow growth.
TD Bank
TD (TSX:TD) is the only Big Five Canadian bank that didn’t announce a dividend increase when it reported fiscal second-quarter (Q2) 2023 results. Investors will likely see a raise, or even a bonus payout, before the end of the year.
TD is sitting on a mountain of excess cash after it cancelled a planned US$13.4 billion acquisition of First Horizon in the United States. The bank is using some of the extra money to buy back shares while the stock is cheap. TD will also use part of the cash hoard to expand organically in the key U.S. markets it wanted to enter by buying First Horizon, a U.S. regional bank with more than 400 branches located in southeastern states.
TD trades near $85 per share at the time of writing. The stock is up from $78 last month but still way off the $108 it fetched in early 2022.
Investors who buy at the current level can get a 4.5% dividend yield.
Recession fears are possibly overblown at this point, and TD has more than enough capital to ride out a deep economic decline if that turns out to be the result of the steep rise in interest rates over the past year.
The bottom line on top stocks to buy for a retirement portfolio
TD and Fortis are good examples of top TSX dividend stocks that have delivered solid long-term returns for patient investors. If you have some cash to put to work in a TFSA or RRSP, these stocks deserve to be on your radar.
