Contrarian investors have an opportunity to buy top TSX stocks with long track records of dividend growth at discounted prices for their self-directed Registered Retirement Savings Plan (RRSP) portfolios.
Buying stocks when they are unloved takes courage and requires the patience to ride out additional turbulence. The long-term returns, however, can be meaningful when the stocks recover.
TC Energy
TC Energy (TSX:TRP) trades for close to $51.50 at the time of writing compared to $44 a few months ago, but it is still down considerably from the peak in 2022.
The company is a major player in the North American energy infrastructure industry, with more than 90,000 km of natural gas pipelines and 650 billion cubic feet of natural gas storage located in Canada, the United States, and Mexico. In addition, TC Energy has power-generation facilities that provide steady cash flow.
Rising interest rates in the past two years have pushed up borrowing costs. TC Energy uses debt to fund part of its capital program. The jump in debt expenses can put a pinch on profits or reduce cash that might be available for distributions. Interest rates are expected to decline in Canada and the United States later this year or in 2025. That should reduce a key headwind for TRP stock.
TC Energy spent much of last year monetizing non-core assets to raise cash to cover the extra costs on its Coastal GasLink pipeline project that reached mechanical completion late in 2023. Additional asset sales are expected in 2024 to further shore up the balance sheet.
TC Energy delivered good financial results in 2023, despite the challenging environment, so the pullback in the share price might have been overdone.
The board has increased the dividend annually for more than two decades. At the time of writing, TRP stock offers a 7.4% dividend yield.
Fortis
Fortis (TSX:FTS) trades for close to $53 at the time of writing compared to the 12-month high of $62. Elevated interest rates are largely to blame for the decline rather than any operational issues.
Fortis is working on a $25 billion capital program that will significantly boost the rate base over the next five years. As with TC Energy, Fortis uses debt to fund part of the financing needed for the growth projects.
Fortis gets nearly all of its revenue from rate-regulated assets, so cash flow tends to be reliable and predictable. The company operates power generation, electric transmission, and natural gas distribution businesses.
Management says the new assets should support annual dividend growth of 4% to 6% through 2028. Investors have received a dividend increase every year for the past five decades, so the outlook should be solid.
At the current share price, investors can get a 4.4% dividend yield from FTS stock.
The bottom line on top stocks for RRSP investors
TC Energy and Fortis pay attractive dividends that should continue to grow. If you have some cash to put to work, these stocks look cheap today and deserve to be on your radar.
