RRSP Investors: 2 Top TSX Stocks to Buy for Total Returns

These top TSX stocks look cheap today.

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Canadian savers who missed the rally off the 2020 market crash have another opportunity to buy top TSX dividend stocks at discounted prices for their self-directed Registered Retirement Savings Plan (RRSP) portfolios.

Buying stocks on pullbacks requires patience to ride out additional turbulence. However, great dividend stocks normally rebound. Getting in when the shares are out of favour increases the dividend yields and sets the position up for higher total returns on the recovery.

Telus

Telus (TSX:T) trades near $24 per share at the time of writing compared to more than $34 at the peak in 2022.

The steep decline over the past year is largely attributed to the rise in interest rates as the Bank of Canada battles to get inflation under control. Telus uses debt as part of its funding strategy for its capital initiatives. The communications firm is spending $2.6 billion this year on projects, including the expansion of the 5G network.

Higher borrowing costs have a negative impact on profits and can reduce cash flow available for distributions to shareholders. The recent leg to the downside is also due to a negative adjustment to financial guidance for 2023 as a result of weaker results at the Telus International (TSX:TIXT) subsidiary that provides global firms with multi-lingual call centre and IT services.

Despite the economic headwinds, Telus is still projecting decent growth in consolidated operating revenue and earnings before interest, taxes, depreciation, and amortization (EBITDA). The core internet and mobile subscription businesses continue to perform well. This should support ongoing dividend growth.

Telus has increased the dividend annually for more than 20 years. Investors who buy the stock at the current level can get a 6% dividend yield.

TD Bank

TD (TSX:TD) trades for close to $83 at the time of writing compared to the 2023 high of around $93 and more than $108 at the peak early last year.

Soaring interest rates are the culprit. Investors are concerned that the Bank of Canada and the United States Federal Reserve will drive rates too high and keep them elevated for too long in their efforts to get inflation back down to the 2% target.

Achieving the goal could require pushing the economy into a recession and unleashing a surge in unemployment. Canadian households with high debt levels are already under pressure to cover increased mortgage costs and higher prices for essentials like food, fuel, and insurance. A jump in job losses across the economy could trigger a wave of mortgage defaults.

TD has a large Canadian residential mortgage portfolio. If defaults spike and property prices crash, the bank could be in for some tough times.

That being said, the consensus forecast among economists is for a short and mild recession. High immigration and a very tight labour market, coupled with high savings, should ease the impact of rate hikes and limit defaults while propping up the housing market.

TD is sitting on a mountain of excess cash after it walked away from a planned acquisition in the United States. The capital cushion is extra insurance against a steep economic downturn. The other side of that coin is that revenue and profits won’t grow as initially predicted over the next couple of years.

Ongoing volatility should be expected, but buying TD stock on big dips has historically resulted in good returns for patient investors. TD has an average compound annual dividend-growth rate of about 10% over the past 25 years. Investors who buy TD stock at the current price can get a 4.6% dividend yield.

The bottom line on top stocks for total returns

Telus and TD pay good dividends that should continue to grow. If you have some cash to put to work, these stocks look cheap today and deserve to be on your radar.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

The Motley Fool recommends TELUS and Telus International. The Motley Fool has a disclosure policy. Fool contributor Andrew Walker owns shares of Telus.

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