Dividend investors have an opportunity to buy great TSX dividend-growth stocks at discounted prices for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio.
Fortis
Fortis (TSX:FTS) trades at around $52.50 per share at the time of writing compared to $65 at the high point in 2022. The 12-month low is close to $50.
Rising interest rates in Canada and the United States are to blame for most of the decline. Fortis uses debt to finance part of its growth initiatives, so higher borrowing costs can cut into profits.
The Bank of Canada just reduced its rate by 0.25%, and the United States Federal Reserve is expected to start reducing interest rates later this year or in early 2025. As borrowing costs decline, there should be a return of buyers to Fortis stock.
Fortis has increased the dividend annually for 50 years and intends to boost the payout by 4-6% annually through 2028, supported by the $25 billion capital program. Investors who buy FTS stock at the current level can get a yield of 4.5%.
Enbridge
Enbridge (TSX:ENB) raised its dividend in each of the past 29 years, and more increases should be on the way. Like Fortis, Enbridge has a large capital program on the go. The company is also in the process of finalizing its US$14 billion acquisition of three natural gas utilities in the United States.
Enbridge’s core oil and natural gas transmission networks are strategically important for the smooth operation of the Canadian and U.S. economies. The company moves 30% of the oil produced in the two countries and 20% of the natural gas used in the United States. Enbridge also has oil export facilities and renewable energy assets that round out the portfolio.
The stock trades near $47.50 at the time of writing compared to $59 two years ago, so there is decent upside potential on a rebound. As with Fortis, the steep rise in interest rates through the second half of 2022 and most of 2023 led to the pullback rather than any specific operational issues.
Enbridge expects distributable cash flow to increase by 3% annually until 2026 and then by 5%. This should support steady dividend hikes in the same range. ENB stock currently provides a dividend yield of 7.7%.
TD Bank
TD is arguably a contrarian pick right now. The stock trades near its 12-month low and the recent decline below $74 brings the stock to a point not seen since early 2021. TD was as high as $108 in early 2022 at the peak of the rally that occurred after the 2020 market crash.
TD’s troubles are company-specific. The bank is under investigation in the United States for not having adequate systems in place to identify and prevent money laundering. TD recently set aside US$450 million as an initial provision for potential fines. Analysts speculate the final penalties could go as high as US$4 billion.
On the positive side, TD remains very profitable and has a large capital cushion to help it ride out the turbulence. The bank should eventually get the situation in the U.S. business sorted out and will then refocus on its growth program south of the border.
More downside is certainly possible in the near term, so I wouldn’t back up the truck. However, TD already looks cheap at this level, and you get paid a decent 5.5% dividend yield to wait for the turnaround. Patient investors have historically generated attractive long-term gains by buying TD on large pullbacks. Positive news, or at least some clarity on the resolution of the U.S. challenges, could send the stock sharply higher.
The bottom line on top TSX dividend stocks
Fortis, Enbridge, and TD pay attractive dividends that should continue to grow. If you have some cash to put to work in a TFSA or RRSP focused on dividends, these stocks look undervalued right now and deserve to be on your radar.
