3 Great TSX Dividend Stocks That Still Look Cheap

These stocks have made some long-term investors quite rich.

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A rally is underway in Canadian dividend stocks that took a beating over the past two years. Investors who missed the bounce are wondering which top TSX dividend-growth stocks might still be undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) targeting passive income or a Registered Retirement Savings Plan (RRSP) focused on total returns.

Telus

Telus (TSX:T) was a $34 stock about two years ago before aggressive rate hikes by the Bank of Canada drove investors out of telecoms. Telus trades near $22.50 at the time of writing.

The drop looks overdone, and investors have a shot at some big upside while collecting a solid 6.9% dividend yield.

Telus generated 7.6% growth in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in 2023 compared to the previous year. In 2024, adjusted EBITDA is expected to increase by at least 5.5%, so the company is performing well.

Revenue challenges are expected to persist at Telus International for most of 2024, but the subsidiary accounts for a small part of overall adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). Telus Health and Telus Agriculture and Consumer Goods groups continue to expand and could become significant contributors to growth in the coming years.

Fortis

Fortis (TSX:FTS) owns and operates power generation, electricity transmission, and natural gas distribution assets in Canada, the United States, and the Caribbean. Nearly all the revenue comes from rate-regulated assets. This means cash flow tends to be predictable and reliable.

Fortis grows through a combination of strategic acquisitions and development projects. The current $25 billion capital program is expected to boost the rate base by a compound annual rate of better than 6% through 2028. As a result, cash flow growth should support planned dividend increases of 4-6% per year over that timeframe. Fortis raised the dividend in each of the past 50 years.

The stock trades near $56 at the time of writing. That’s up about 9% in the past month but is still down from the 2022 high of around $65. Investors who buy at the current level can get a 4.2% dividend yield. This is lower than the yield on other stocks right now, but the steady dividend growth over the coming years will boost the return on the initial investment.

Investors with a buy-and-hold strategy have done well buying Fortis on dips over the past 25 years.

TD Bank

TD (TSX:TD) is a contrarian pick today. The stock is under pressure due to investigations in the United States pertaining to the bank’s anti-money-laundering systems. TD recently announced it will take an initial US$450 million charge to cover potential fines. Analysts predict the total penalties could hit US$2 billion. In addition, there is some concern that American regulators could put a cap on TD’s U.S. growth until the issues are cleared up.

Despite the near-term headwinds and the potential for additional downside, TD stock is probably an attractive pick right now for patient investors. The bank will eventually get through the current challenges, and investors will get paid a decent 5.25% yield to wait for the rebound. TD trades near $77 at the time of writing. The stock was $108 in early 2022, so there is good upside potential.

The bottom line on top TSX dividend stocks

Telus, Fortis, and TD have a good track record of delivering dividend growth and attractive long-term returns. If you have some cash to put to work, these stocks look cheap right now and deserve to be on your radar.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

The Motley Fool recommends Fortis, TELUS, and Telus International. The Motley Fool has a disclosure policy. Fool contributor Andrew Walker owns shares of Telus.

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