Investors who missed the surprise rally in the fourth quarter (Q4) of 2023 are wondering which top Canadian dividend stocks are still undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) focused on passive income or a Registered Retirement Savings Plan (RRSP) targeting total returns.
Fortis (TSX:FTS) trades for close to $54 at the time of writing compared to more than $64 at the high point in 2022. The pullback is primarily due to rising interest rates rather than any operational issues at the utility company.
Fortis gets nearly all of its revenue from rate-regulated businesses that include power-generation facilities, electric transmission networks, and natural gas distribution utilities. The roughly $66 billion in assets provided essential electric and natural gas services to 3.4 million utility customers. Cash flow should be steady, regardless of the state of the economy.
Fortis grows by making strategic acquisitions and building new utility assets. The current $25 billion capital program through 2028 is expected to support average annual dividend growth of at least 4%, driven by an expansion of the mid-year rate base from $36.8 billion in 2023 to $49.4 billion by 2028.
Fortis has increased the dividend in each of the past 50 years. Investors who buy Fortis stock at the current price can get a 4.4% dividend yield.
TC Energy (TSX:TRP) is another great Canadian dividend-growth stock that should have good upside potential for investors and currently pays a high dividend yield. TRP trades near $52 at the time of writing. That’s up from $45 a few months ago but still down from the $74 it hit in 2022.
The company is transitioning to focus more on natural gas transmission and power generation. For example, TC Energy plans to spin off its oil pipeline business in 2024 to unlock value for shareholders. Asset sales of about $3 billion in 2024 will add to the $5.3 billion completed in 2023 to reduce debt further and shore up the balance sheet to pursue ongoing capital projects.
TC Energy achieved mechanical completion of its 670 km Coastal GasLink pipeline project in late 2023. The assets will carry natural gas from Canadian producers to a new liquified natural gas (LNG) export facility being built in British Columbia. The site is expected to begin operation in 2025.
TC Energy should report 2023 financial results near the top of its guidance for last year. Looking ahead, management expects the capital program to drive revenue and cash flow growth to support annual dividend increases of at least 3%. Investors have received an increase every year for more than two decades. At the current share price, TRP stock provides a 7.2% dividend yield.
The bottom line on cheap TSX dividend stocks
Fortis and TC Energy pay solid dividends that should continue to grow. If you have some cash to put to work, these stocks still look attractive today and deserve to be on your radar.