2 Canadian Dividend Stocks to Buy on a Pullback

These stocks deserve to be on your radar when the market hits its next correction.

| More on:
hand stacks coins

Source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The TSX is likely due for a pullback after rallying 30% in the past year. Investors who missed the surge are wondering which Canadian dividend stocks might be good to buy on weakness for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio.

Royal Bank of Canada

Royal Bank (TSX:RY) is up more than 55% in the past 12 months. The stellar rally occurred as investors started to move back into top bank stocks after market sentiment shifted from fears of additional interest rate hikes to expectations of interest rate cuts.

Created with Highcharts 11.4.3Royal Bank Of Canada PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.ca

Interestingly, higher interest rates are normally good for banks due to the larger net interest margins that can be earned. However, the sharp rise in interest rates in Canada and the United States that occurred over such a short period of time also put pressure on borrowers with too much debt. Royal Bank and its peers increased provisions for credit losses (PCL) to prepare for a potential surge in defaults by customers who were struggling to cover the increase in interest expenses.

Now that the Bank of Canada and the U.S. Federal Reserve have started to reduce interest rates, borrowers should get some breathing room, and PCL is expected to decline in the coming quarters. In fact, Royal Bank already reported a decline in PCL in the fiscal third quarter (Q3) of 2024 compared to fiscal Q2 2024.

On the revenue side, Royal Bank completed its acquisition of HSBC Canada earlier this year. The purchase gave fiscal Q3 2024 pre-provision, pre-tax earnings a $412 million boost. Royal Bank finished fiscal Q3 2024 with a common equity tier-one (CET1) capital position of 13%. This means the bank has ample excess cash to make additional acquisitions or return more cash to shareholders through buybacks and dividend growth.

Royal Bank is a giant in the Canadian market and ranks among the top 10 globally based on market capitalization.

TC Energy

TC Energy (TSX:TRP) is up about 35% in the past year after an extended slide in 2023. Lower interest rates are at play in this case as well.

TC Energy uses debt to fund its large growth programs. The surge in borrowing costs through the back half of 2022 and the first three quarters of 2023 largely drove the stock’s decline from $74 in June 2022 to $45. Expectations for rate cuts in 2024 attracted bargain hunters last fall, and the realization of rate cuts in recent months fuelled the extension of the rally. Lower borrowing costs will reduce debt expenses and can free up more cash for dividends or debt reduction.

TC Energy completed its $14.5 billion Coastal GasLink pipeline in late 2023. The budget came in more than double the initial plan, so TC Energy sold interests in some non-core assets to shore up the balance sheet to enable it to pursue the rest of the capital program, which is expected to be about $6 billion per year over the medium term. TC Energy also successfully completed the spin-off of its oil pipelines division to help unlock value and position the company to move ahead with growth initiatives.

TC Energy has increased the dividend annually for the past 24 years. At the time of writing, the stock provides a yield of 6%.

The bottom line on TSX dividend stocks

Royal Bank and TC Energy pay attractive dividends that should continue to grow. If you have some cash to put to work, these stocks deserve to be on your radar during the next market pullback.

Should you invest $1,000 in Autocanada Inc. right now?

Before you buy stock in Autocanada Inc., consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Autocanada Inc. wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

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 has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. Fool contributor Andrew Walker has no position in any stock mentioned.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Dividend Stocks

grow money, wealth build
Dividend Stocks

Why I’d Invest $10,000 in This Undervalued Dividend-Growth Stock for Decades of Income

This undervalued dividend stock offers a high yield of over 8% and can help you earn more than $200 in…

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

Here’s Exactly How a $20,000 TFSA Could Potentially Grow to $200,000

Index funds like the iShares S&P/TSX Capped Composite Index (TSX:XIC) are tax free in a TFSA.

Read more »

Dividend Stocks

How I’d Invest $6,000 in Canadian Real Estate Stocks to Build Lasting Wealth

Canadian REITs on sale! See how grocery-anchored retail properties offering 9% yields could turn $6,000 into lasting wealth despite US…

Read more »

rain rolls off a protective umbrella in a rainstorm
Dividend Stocks

Economic Headwinds: Should You Still Consider Buying the Dip?

A market dip might seem like a bumpy road, but it can be far smoother in the future with the…

Read more »

e-commerce shopping getting a package
Dividend Stocks

Consumer Spending Plays Amidst the Current Market Dip

Consumption may go down in market dips, but certain consumer stocks are certainly better off than others.

Read more »

Asset Management
Dividend Stocks

12% Dividend Yield! I’m Buying This TSX Stock and Holding for Decades

Stocks with high-dividend yields carry risks. But they could be a good long-term investment. Here is a 12% dividend stock…

Read more »

Canadian flag
Dividend Stocks

How I’d Build a Foundation of Canadian Value Stocks in My Investment Strategy

Canadian investors can explore iShares Canadian Value Index ETF for value stock ideas to build a foundation for their diversified…

Read more »

Canadian dollars are printed
Dividend Stocks

How I’d Transform a $30,000 TFSA Into a Cash-Flow Machine

Here's why TFSA investors should consider owning dividend stocks such as Mullen Group in 2025.

Read more »