The market downturn that has occurred over the past year is giving investors who missed the bounce off the 2020 crash a new opportunity to buy great TSX dividend stocks at cheap prices.
Power of compounding
A popular strategy for building retirement wealth involves buying dividend-growth stocks and using the distributions to acquire new shares. The compounding effect is modest at the beginning, but the long-term impact on the size of a retirement fund can be substantial.
Dips in share prices enable the dividends to buy more shares, and top dividend stocks that typically boost payouts annually are normally rewarded with share prices that tend to rise over time.
Owning stocks carries risk, and good companies sometimes get into big trouble, but most great dividend stocks with long track records of distribution growth will provide patient investors with attractive total returns.
Bank of Montreal
Bank of Montreal (TSX:BMO) paid its first dividend in 1829. Since then, investors have received a distribution every year. That’s a good run considering all the economic and financial upheavals that have occurred over the past 200 years.
Bank of Montreal used a big chunk of the cash hoard it built up during the pandemic to make a huge bet in the United States. BMO Harris Bank, the American subsidiary, purchased Bank of the West for US$16.3 billion.
The deal added more than 500 branches and gave Bank of Montreal a strong foothold in California. The state’s 2022 GDP (gross domestic product) of more than US$3.5 trillion would place California as one of the top five economies on the planet if it were independent of the United States. California’s population is close to the population of Canada.
Bank of Montreal now has a presence in more than 30 American states, so it is positioned to benefit from long-term growth in the U.S. economy.
Bank of Montreal trades near $122 per share at the time of writing. That’s off the 12-month high of around $137.
Investors who buy the dip can pick up a 4.8% dividend yield. Bank of Montreal increased the dividend when it reported fiscal second-quarter (Q2) 2023 results. The move suggests the board is comfortable with the revenue and profit outlook, even as banks face some economic headwinds.
Telus
Telus (TSX:T) trades near $23.50 at the time of writing compared to more than $34 at the peak last year. The uncharacteristic decline in the share price is due to two factors. First, rising interest rates are driving up borrowing costs for funding capital projects. Higher rates are also making GICs more attractive for investors who often buy telecom stocks for their dividends.
Second, Telus International (TSX:TIXT), a Telus subsidiary that provides call centre and IT services to international businesses, is feeling the pinch from declining revenues as global companies reduce expenditures.
The coming quarters might be a bit rocky, but the core driver of revenue growth at Telus remains strong. Telus provides mobile and internet services to Canadian households and businesses. These are essential services that are required, regardless of the state of the economy.
Telus is probably oversold right now and offers an attractive 6.2% dividend yield. The company typically increases the dividend by 7-10% annually.
The bottom line on top dividend stocks to buy for a retirement fund
Bank of Montreal and Telus are good examples of Canadian dividend stocks to buy on a dip. If you have some cash to put to work in a self-directed pension fund, these stocks deserve to be on your radar.
