Canadian investors have an opportunity to buy great TSX dividend stocks at cheap prices. Diving in when the rest of the market is selling is a contrarian move, but the strategy boosts dividend yields and potentially sets the portfolio up for big total returns when the market recovers.
TD Bank
TD (TSX:TD) trades for close to $81 per share at the time of writing compared to $108 in early 2022.
The stock is down along with the broader pullback in the banking sector. Investors are concerned that the Bank of Canada and the United States Federal Reserve have increased interest rates too aggressively in their efforts to cool off the economy to get inflation under control. If a deep recession occurs and unemployment surges there could be a wave of loan defaults as businesses and households struggle to pay bills.
Economists broadly expect a mild and short recession to occur in Canada and the United States as inflation falls back to the 2% target. Assuming that scenario plays out, TD stock looks oversold right now.
TD has a significant capital cushion to ride out economic turbulence after the bank abandoned a planned acquisition in the American market. Near-term revenue and profit growth will be lower as a result of the cancelled deal, but TD still intends to grow the American business organically over the coming years.
Buying TD stock on big dips has historically proven to be a savvy strategy. Investors can now get a 4.7% dividend yield.
Telus
Telus (TSX:T) trades for close to $24 at the time of writing compared to $34 at the high point last year. The drop is largely due to rising interest rates, but Telus also had to reduce its 2023 guidance and cut thousands of employees due to challenges at its Telus International subsidiary.
Despite the headwinds, Telus still expects to generate nearly 10% growth in consolidated revenue in 2023, supported by the core mobile and internet subscription businesses. These are essential services for households and businesses, even during difficult economic times.
Telus has increased the dividend annually for more than two decades. At the time of writing, investors can get a 6.2% dividend yield.
Fortis
Fortis (TSX:FTS) operates utility assets valued at $64 billion across Canada, the United States, and the Caribbean. The company gets nearly all of its revenue from rate-regulated businesses. These include power-generation facilities, electricity transmission networks, and natural gas distribution utilities.
Fortis has a $25 billion capital program on the go that is expected to boost the rate base enough over the next five years to support annual dividend increases of at least 4%. Fortis raised the payout in each of the past 50 years.
FTS stock isn’t as cheap as it was a few weeks ago but still looks attractive and currently offers a 4.2% dividend yield.
The bottom line on cheap dividend stocks
TD Bank, Telus, and Fortis all pay attractive dividends that should continue to grow. If you have some cash to put to work in a portfolio focused on dividends and total returns, these stocks deserve to be on your radar while they are out of favour.
