A market correction is difficult to watch for investors who are saving for their retirement. Pullbacks, however, also give investors an opportunity to buy top dividend stocks at discounted prices for a buy-and-hold Registered Retirement Savings Plan (RRSP) portfolio.
Dips in share prices boost the yields on the dividends and can give investors a chance to average down their purchase costs on great stocks. High-quality companies with good track records of dividend payments usually bounce back from corrections and often move to new highs.
Bank of Montreal
Bank of Montreal (TSX: BMO) recently reported fiscal third-quarter (Q3) 2023 results that came in a bit below analyst expectations. The stock has since extended its 2023 decline and is now starting to look oversold.
Bank of Montreal generated adjusted net income of $2.04 billion in the latest quarter compared to $2.13 billion in the same period last year. $2 billion in profits for three months of operations is pretty good. Adjusted return on equity came in at 11.7%, down from 13.8%, but BMO is still very profitable.
Bank of Montreal closed a major acquisition in the United States earlier this year just before a handful of American regional banks went bust. Investors might be concerned that BMO paid too much with its US$13.8 billion cash purchase of Bank of the West. That might be the case, considering many American regional banks are trading way below their previous levels, but the deal positions BMO Harris Bank, the U.S. subsidiary, for solid long-term growth.
Bank of Montreal paid its first dividend in 1829. Investors have since received a piece of the profits every year. At the time of writing, BMO stock provides a 5.1% dividend yield.
Fortis
Fortis (TSX: FTS) trades below $54 per share at the time of writing compared to more than $64 at the high point last year. The pullback gives investors a chance to pick up a 4.2% dividend yield and wait for ongoing dividend increases to boost the return.
Fortis is working on a $22.3 billion capital program that is expected to increase the rate base by about a third over five years. The resulting boost to cash flow should support planned annual dividend growth of 4-6% through 2027. Fortis has other capital projects under consideration that could get added to the mix and extend the outlook.
Fortis raised the dividend in each of the past 49 years. This type of reliable dividend growth is key to generating solid total returns in a self-directed RRSP, where investors use dividends to buy new shares to harness the power of compounding.
A $10,000 investment in Fortis stock 20 years ago would be worth more than $70,000 today with the dividends reinvested.
The bottom line on top RRSP stocks
Bank of Montreal and Fortis pay attractive dividends that should continue to grow. If you have some cash to put to work in a self-directed RRSP, these stocks look cheap today and deserve to be on your radar.
