Contrarian investors are searching for TSX stocks that might still be undervalued, even with the market trading at a record high. Buying stocks when they are out of favour requires the patience to ride out turbulence, but good businesses normally bounce back over the long run.
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TD Bank
TD (TSX: TD) trades near $78 per share at the time of writing. The stock was as low as $74 earlier this year but is way off the $108 it reached in 2022.
American regulators recently hit TD with a US$3 billion fine and an asset cap on its business in the United States as penalties for not having adequate systems in place to identify and prevent money laundering in the American operations. The cap on growth in the U.S. market is a big deal given TD’s previous plan to extend its 20-year expansion in the U.S. market that saw TD buy regional banks running from Maine right down the east coast to Florida.
A new chief executive officer is taking over at TD next year. This will likely lead to an overhaul of the senior management team and a corporate review to decide on a new strategic plan to deliver growth. TD isn’t abandoning the U.S., but it will be some time before it is allowed to build on its presence in the American market in a meaningful way.
Fortunately for investors, TD remains a very profitable bank that has the financial firepower to seek out growth opportunities in other markets. Patience is required, but in the meantime, investors can collect a decent 5.2% dividend yield from TD stock.
Fortis
Fortis (TSX: FTS) isn’t as cheap as it was a few months ago, but the stock is still below the 2022 high and continues to grow the revenue stream through its $26 billion capital program. The utility company operates power generation, electricity transmission, and natural gas distribution businesses in Canada, the United States, and the Caribbean. Nearly all of the revenue comes from rate-regulated assets, so cash flow tends to be predictable and reliable.
Fortis has increased the dividend annually for 51 consecutive years. The most recent boost is a 4.2% raise for 2025. As new assets are completed under the capital plan and go into service, Fortis expects the rate base to rise from $38.8 billion in 2024 to $53 billion in 2029. This should support planned annual dividend increases of 4% to 6% over that timeframe. Fortis has other projects under consideration that could be added to the program. In addition, Fortis has a good track record of making strategic acquisitions to drive additional growth.
Investors who buy Fortis stock at the current price near $61.50 can get a dividend yield of 4%.
The bottom line on top buy-and-hold TSX stocks
TD Bank and Fortis pay good dividends and trade at reasonable prices in a market that looks a bit overstretched. If you have some cash to put to work in a buy-and-hold portfolio focused on dividends and total returns, these stocks deserve to be on your radar.
