Canadian investors are searching for top TSX dividend stocks to put in their self-directed Registered Retirement Savings Plan (RRSP) portfolios. RRSP holdings tend to be long-term investments with the goal of building wealth through dividend payments and capital appreciation.
A number of top TSX dividend-growth stocks currently trade well below their all-time highs and now offer attractive yields.
Fortis
Fortis (TSX:FTS) trades near $53 per share compared to $65 at one point in 2022.
The pullback over the past two years is largely due to rising interest rates in Canada and the United States rather than any specific operational issues at the company.
The Bank of Canada and the U.S. Federal Reserve raised interest rates in an effort to get inflation under control by cooling off the economy and bringing the jobs market back into balance. Inflation topped out around 8% in Canada and 9% in the U.S. in June 2022. The February 2024 inflation reports came in at 2.8% and 3.2%, respectively, for the two countries, so progress is being made toward the 2% inflation target. Markets broadly expect the central banks to begin cutting rates at some point this year to avoid pushing the economy into a recession.
Rate cuts should benefit Fortis. The company uses debt to fund part of its large capital program. Lower borrowing rates will free up more cash for distributions.
On the operational side, Fortis is working through a $25 billion capital program that will expand the rate base considerably through 2028. The resulting boost to cash flow is expected to support planned annual dividend hikes of at least 4%. Fortis has increased the distribution annually for the past 50 years. Investors who buy FTS stock at the current level can get a 4.4% dividend yield.
TD Bank
TD Bank (TSX:TD) is a giant in the Canadian financial sector with a current market capitalization near $144 billion. The stock trades near $81.50 at the time of writing compared to $108 at the peak in early 2022.
Bank stocks came under pressure over the past 24 months as investors worried that rising interest rates would trigger a severe recession and cause a wave of commercial and household bankruptcies. Higher interest rates are certainly putting pressure on borrowers with too much debt. TD and its peers have increased their provisions for credit losses (PCL) in recent quarters. The longer that interest rates remain at current levels, the higher the risk that defaults will increase. That being said, the overall loan book remains in good shape, and TD can generate better net interest margins when rates are high, so there is upside to the situation.
TD abandoned a planned US$13.4 billion takeover of First Horizon, a U.S. regional bank, last year, citing regulator concerns. The decision forced TD to reduce its growth outlook but also likely came as a relief to investors. TD had tentatively agreed to pay US$25 per share. First Horizon currently trades for about US$15.
Management now plans to expand the American retail business organically over the next few years. TD is sitting on a large capital cushion that it can use for this purpose. The bank might also find another acquisition target while bank valuations remain attractive.
Investors can now get a solid 5% dividend yield from TD stock. Buying the shares on a big pullback has historically proven to be a savvy move for patient investors.
The bottom line on top stocks for RRSP investors
Fortis and TD have great track records of delivering long-term dividend growth and capital gains. Near-term volatility should be expected, but these stocks look attractive at current levels and deserve to be on your radar for a buy-and-hold RRSP focused on dividends and total returns.
