Canadian investors are searching for top TSX stocks to add to their self-directed Registered Retirement Savings Plan (RRSP) and Tax-Free Savings Account (TFSA) portfolios. Given the current economic climate, it makes sense to consider great Canadian dividend payers with long track records of providing distribution growth and solid total returns.
Fortis
Fortis (TSX:FTS) is a large Canadian utility company with a current market capitalization near $26 billion. The various businesses are spread out across Canada, the United States, and the Caribbean and include power-generation facilities, electric transmission networks, and natural gas distribution utilities.
Fortis trades near $54 per share at the time of writing compared to $65 at the high point in 2022. The pullback looks overdone, even as high interest rates drive up borrowing costs.
Fortis is working on a $25 billion capital program that will increase the rate base from $36.8 billion in 2023 to $9.4 billion in 2028. The growth in revenue and cash flow is expected to support planned annual dividend increases of at least 4% over five years. This is good guidance in a challenging economic environment.
Fortis increased the dividend in each of the past 50 years. Investors who buy FTS stock at the current level can get a 4.3% dividend yield.
TD Bank
TD (TSX:TD) is another top TSX stock with a strong history of dividend growth. The bank is a giant in the Canadian market and has a large presence in the United States. In fact, TD operates more branches south of the border than it does in Canada.
TD trades near $82.50 per share at the time of writing. That’s off the 12-month low of around $76 but still considerably under the $108 the stock reached about two years ago during the rally after the pandemic crash. Rising interest rates are putting pressure on companies and households that have too much debt, and TD has increased its provision for credit losses (PCL) considerably in the past year. This trend is expected to continue in 2024, but the overall loan book remains very strong, and TD has a large capital cushion to enable it to ride out ongoing turbulence.
The company cancelled a large acquisition in the United States last year, citing regulatory issues. TD will now grow organically in strategic areas in the American market. Abandoning the deal to buy First Horizon meant giving up anticipated revenue and earnings growth from the acquisition, but the move was likely a good one for investors over the long run. Bank valuations in the mid-segment are now much lower in many cases, and TD could still find another strategic opportunity in a different market.
TD remains very profitable, despite the headwinds, and investors who buy the stock at the current level can get a dividend yield close to 5%. This is a bit of a contrarian pick right now, but buying TD stock on big pullbacks has historically proven to be a winning move over the long haul.
The bottom line on top TSX dividend stocks
Near-term volatility should be expected until the Bank of Canada and the U.S. Federal Reserve begin cutting interest rates. That being said, Fortis and TD pay attractive dividends that should continue to grow, and the share prices still look cheap at their current levels. If you have some cash to put to work in a TFSA or RRSP, these stocks deserve to be on your radar.
