Great Canadian dividend stocks are now on sale. Investors who missed the rally off the 2020 market crash can now get great deals again on top dividend-growth stocks for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio.
Fortis
Fortis (TSX:FTS) has a dividend yield of 4.6%. Investors often skip the stock in favour of others with higher returns, but that can be short-sighted for a buy-and-hold portfolio.
Why?
Fortis has increased its dividend for 50 consecutive years and intends to boost the payout by 4-6% annually through at least 2028. The company has a $25 billion capital program on the go that will increase the rate base from $37 billion in 2023 to $49.4 billion in 2028. The resulting boost to cash flow should support the dividend growth.
Once interest rates begin to come down, this stock could catch a new tailwind as investors shift out of GICs and back into reliable dividend-growth stocks. Fortis trades near $52 at the time of writing. The stock was above $60 a year ago.
Fortis generated solid 2023 results, so the pullback is primarily due to rising interest rates, rather than any operational issue with the business. The company owns $66 billion in assets that include power generation, electric transmission, and natural gas distribution businesses in Canada and the United States. Nearly all of the revenue is from regulated assets, so cash flow tends to be predictable and reliable.
TD Bank
TD (TSX:TD) trades for close to $78.50 at the time of writing compared to $108 in early 2022 at the peak of the post-pandemic rally. The pullback is largely the result of investors fears that high interest rates in Canada and the United States will ultimately cause a deep recession and drive up loan defaults.
The Bank of Canada and the United States Federal Reserve raised rates aggressively in 2022 and 2023 to get inflation under control. So far, the economy has absorbed the rate hikes without a major issue, although it takes time for rate increases to work through the system. At this point, inflation appears sticky around the 3% level, so rates might not start to come down until late 2024 or early 2025. If that turns out to be the case, TD could remain under pressure over the near term.
TD has the cash reserves to ride out difficult times. The bank is sitting on a large capital position after deciding to abandon a planned takeover in the United States last year. Management now intends to grow the U.S. business organically. Acquisition opportunities could also come up in other markets to drive growth.
In the meantime, investors can get a 5.2% dividend yield from TD stock. Buying TD on large pullbacks has historically proven to be a savvy and profitable move for patient contrarian investors.
The bottom line on top TSX dividend stocks
Fortis and TD 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.
