Recent rate cuts in Canada and expected cuts to interest rates south of the border in the coming months should provide additional support for TSX dividend stocks that are catching a new tailwind.
Investors who missed the rally in the past few weeks are wondering which top Canadian dividend stocks are still undervalued and good to buy for a self-directed Registered Retirement Savings Plan (RRSP) portfolio.
TC Energy
TC Energy (TSX:TRP) is up 17% in the past month amid renewed confidence that management’s efforts to rebuild the balance sheet are working and the company is poised to deliver steady growth in the coming years. Reduced borrowing expenses in 2025 will also help the bottom line and should free up more cash for distributions.
TC Energy raised $5.3 billion last year through the sale of interests in some of its American assets. The company is on track to monetize another $3 billion in 2024. These efforts shore up the balance sheet after the company’s Coastal GasLink project’s cost more than doubled to $14.5 billion. The 670 km pipeline reached mechanical completion in late 2024 and is expected to go into commercial operation in 2025 as it delivers natural gas from Canadian producers to a new liquified natural gas (LNG) export facility being built on the coast of British Columbia. Coastal GasLink completed a $7.15 billion bond sale in June, securing the refinancing of credit lines taken out to get the project to the finish line. This bond deal is the largest-ever corporate bond offering in Canada. The success of the issue indicates market confidence in the ability of the asset to deliver solid returns in the coming years.
TC Energy raised its dividend in each of the past 24 years. Investors should see steady dividend increases continue, supported by the remaining capital program. TC Energy is targeting investments of roughly $8 billion in 2024 and a run rate of around $6 billion to $7 billion annually over the medium term.
Investors who bought the stock at the 12-month low of around $44 are already sitting on nice gains, but more upside should be on the way. TC Energy traded as high as $74 in 2022 before rate hikes in Canada and the U.S. hit the pipeline sector.
Fortis
Fortis (TSX:FTS) is a good stock to own for RRSP investors who like steady dividend growth and don’t want to worry about checking the share price every month. The utility company owns $68 billion in assets located across Canada, the United States, and the Caribbean. Nearly all of the revenue comes from rate-regulated businesses, including power generation facilities, natural gas distribution utilities, and electricity transmission networks. Cash flow tends to be predictable and reliable, so management can comfortably plan investments to drive growth through acquisitions and internal projects.
Fortis is working on a $25 billion capital program that will boost the rate base from $37 billion in 2023 to $49.4 billion in 2028. As new assets go into service, the jump in cash flow should support the targeted annual dividend growth of 4% to 6%. Additional projects are under consideration, and it wouldn’t be a surprise to see Fortis evaluate new acquisition targets once interest rates start to decline in the United States and continue to fall in Canada.
Investors can get a 4% dividend yield from Fortis at the current price near $59. The stock was as high as $65 in 2022, so there is still decent upside potential as money transitions back into utilities. Fortis has increased the dividend annually for the past 50 years.
The bottom line on top TSX dividend stocks
TC Energy and Fortis pay attractive dividends that should continue to grow. If you have some RRSP cash to put to work, these stocks deserve to be on your radar heading into 2025.
