Investors can take advantage of the market correction to buy top Canadian dividend stocks for their self-directed Tax-Free Savings Account (TFSA).
Buying stocks on dips is a contrarian strategy that can deliver attractive total returns. Good TSX dividend-growth stocks normally recover from a correction, and acquiring them at lower price points increases the yield on the initial investment.
Enbridge
Enbridge (TSX: ENB) trades near $48.50 at the time of writing compared to $59.50 in June 2022. The drop gives investors a chance to buy the pipeline giant at a discounted price and pick up a solid 7.3% dividend yield.
At this rate of return, the stock looks good, even if the share price stays near the current level. TFSA investors seeking passive income get a great yield, and those who use dividends to buy more shares can harness the power of compounding to build wealth.
Management is targeting adjusted earnings per share (EPS) growth of 4% through 2025 and 5% beyond. Distributable cash flow (DCF) is expected to increase by 3% per year for the next couple of years and then at 5% over the medium term. Enbridge has a $17 billion capital program on the go to support the growth guidance. The company is also large enough to make strategic acquisitions to boost revenue.
Enbridge increased the dividend in each of the past 28 years. Investors should see distribution growth continue in line with DCF expansion.
Telus
Telus (TSX: T) is out of favour with investors right now due to weak results reported by its subsidiary, Telus International (TSX: TIXT), which offers global companies multilingual customer care and IT services. TIXT stock is down about 60% over the past year.
At the time of writing, Telus trades below $24.50 per share compared to more than $34 at one point in 2022. The drop appears overdone, and investors can now get a dividend yield of close to 6% from one of Canada’s best dividend stocks.
Telus has increased the dividend annually for more than two decades, and investors typically get a 7-10% increase each year. The company generates most of its revenue from mobile and internet subscriptions. These are essential services that businesses and residential clients need, regardless of the state of the economy.
Telus lowered its 2023 guidance after the negative news from TIXT. Previously, Telus expected to deliver consolidated operating revenue growth of 11-14% this year. It now expects the range to be 9.5-11.5%. Growth in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) is now predicted to be 7-8% compared to previous guidance of 9.5-11%.
The reduced outlook is frustrating for shareholders, but the dip in the share price should be viewed as a good opportunity to add Telus to the portfolio.
The bottom line on top stocks for a retirement fund
Enbridge and Telus pay attractive dividends that should continue to grow. If you have some cash to put to work in a self-directed TFSA or Registered Retirement Savings Plan, these stocks deserve to be on your radar.
