Recent cuts to interest rates by the Bank of Canada could trigger a major shift of investor funds from Guaranteed Investment Certificates (GICs) back into top dividend stocks. Several leading dividend-growth names have already picked up a new tailwind but remain undervalued and offer attractive dividend yields for a self-directed Registered Retirement Savings Plan (RRSP) portfolio.
Telus
Telus (TSX:T) recently traded as low as $20, but is back up to $21.75 at the time of writing. The stock was as high as $34 in 2022, so there is decent upside potential for an extended recovery.
Soaring interest rates caused most of the grief in the second half of 2022 and through last year. Revenue challenges at the Telus International subsidiary and price wars on mobile and internet services in Canada have also contributed to the pain.
Lower interest rates will cut borrowing expenses for Telus. This should help the bottom line in 2025. Telus also eliminated roughly 6,000 jobs over the past year to trim expenses. Investors should see the full impact of these efforts in the coming quarters as well.
Aggressive competition for customers, especially in the prepaid segment of the mobile market, is expected for some time, but Telus has strong brands and continues to deliver growth. In addition, the Telus Health subsidiary and the Telus Agriculture and Consumer Goods group have the potential to drive good long-term revenue growth.
Telus delivered 7.6% growth in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) last year and is targeting adjusted EBITDA growth of at least 5.5% in 2024. That’s decent in a challenging environment and should ensure support for the dividend.
Telus has increased the payout annually for more than two decades. Investors who buy Telus at the current level can get a dividend yield of 7.1%.
Enbridge
Enbridge (TSX:ENB) is a giant in the North American energy infrastructure industry with a current market capitalization of nearly $110 billion. The company’s size gives it the financial firepower to make large strategic acquisitions to drive growth alongside the extensive capital program.
Enbridge is in the process of completing its US$14 billion purchase of three natural gas utilities in the United States. The deals make Enbridge the largest natural gas utility operator in North America. Enbridge has also pivoted investment in recent years to benefit from growing international demand for American and Canadian oil and natural gas. Enbridge purchased an oil export terminal in Texas for US$3 billion and is a partner in the Woodfibre liquified natural gas (LNG) export facility being built on the coast of British Columbia.
On the development front, Enbridge is working through its $25 billion backlog of secured capital projects. As new assets go into service, the company expects to deliver average annual EBITDA growth of about 5% and distributable cash flow (DCF) growth of at least 3% per year over the medium term. This should support steady dividend increases.
Enbridge raised the dividend in each of the past 29 years. Investors who buy the stock at the current price near $50.50 can get a dividend yield of 7.25%.
The bottom line on top RRSP dividend stocks
Telus and Enbridge pay attractive dividends that should continue to grow. If you have some cash to put to work in a self-directed RRSP, these stocks still look cheap right now and deserve to be on your radar.
