Buying top TSX dividend stocks on pullbacks for a self-directed Registered Retirement Savings Plan (RRSP) requires a contrarian investing style, but the strategy can boost the total returns on investments over time by picking up stocks when their dividend yields are higher and benefiting from the recovery in the share price when market sentiment improves.
Fortis
Fortis (TSX: FTS) raised its dividend in each of the past 49 years. That’s a great track record that is expected to continue.
Fortis is working on a $22.3 billion capital program that will increase the rate base from $34.1 billion to $46.1 billion over five years. The resulting boost to cash flow as the new assets go into service is projected to support planned annual dividend hikes of 4-6% through at least 2027.
Fortis has other developments on the drawing board that could get the green light and be added to the program. This would potentially raise the size of the dividend increases or extend the dividend-growth guidance. Fortis also makes strategic acquisitions when good opportunities arise.
Fortis gets nearly all of its revenue from rate-regulated businesses, including power-generation facilities, electric transmission networks, and natural gas distribution utilities. These are essential services that generate predictable cash flow.
Fortis stock trades near $51.50 at the time of writing compared to $61.50 in May.
The drop looks overdone, and investors can now get a solid 4.6% yield from FTS stock.
Bank of Montreal
Bank of Montreal (TSX: BMO) paid its first dividend in 1829 and has given investors an annual slice of the profits since that time. The bank has weathered multiple financial storms over the past two centuries and is positioned well to ride out the current headwinds facing the banking sector.
Bank of Montreal remains very profitable and has a solid capital cushion to help it get through a potential economic downturn. Canadian banks are among the strongest in the world and tend to emerge from challenging times in decent shape.
Bank of Montreal’s growing American operations should deliver good long-term growth as the U.S. economy expands.
BMO stock trades near $113 per share at the time of writing compared to more than $150 in early 2022. Investors who buy Bank of Montreal shares at the current level can get a 5.2% dividend yield.
TC Energy
TC Energy (TSX: TRP) has increased its dividend annually for more than two decades. The natural gas transmission firm operates more than 90,000 km of natural gas pipelines and 650 billion cubic feet of natural gas storage capacity across Canada, the United States, and Mexico. Natural gas demand is expected to remain strong for decades, as utilities around the globe switch to the fuel from oil and coal to produce electricity.
TC Energy is working on a $34 billion capital program that is expected to support annual dividend increases of 3-5% over the medium term. Management plans to spin off the oil pipelines division to raise cash. This is in addition to a recent deal to monetize part of the American assets for $5.2 billion to shore up the balance sheet.
TRP stock trades near $47 per share at the time of writing compared to more than $70 last year. Investors can now get a 7.9% dividend yield.
The bottom line on top dividend stocks for RRSP investors
Near-term volatility should be expected, and additional downside is certainly possible for Fortis, Bank of Montreal, and TC Energy. However, the share prices already look discounted, and investors should see dividends continue to grow.
If you have some cash to put to work in a self-directed RRSP, these stocks deserve to be on your radar.
