Contrarian investors are searching for undervalued dividend stocks that could deliver attractive total returns over the next few years. The TSX trades near its record high, but some top Canadian dividend stocks are down in recent months, offering some decent potential upside.
Canadian Natural Resources
Canadian Natural Resources (TSX:CNQ) is down about 15% from the 2024 peak due to a pullback in energy prices.
The company owns and operates a range of production assets, including oil sands, conventional heavy oil, conventional light oil, natural gas, and natural gas liquids. CNRL tends to own most of its operations outright or is the majority partner. This gives management the flexibility to move capital around the portfolio quickly to take advantage of beneficial changes in commodity prices.
CNRL has a strong balance sheet and is a giant in the Canadian energy patch with its current market capitalization near $100 billion. This gives management the financial firepower to make large acquisitions that only a few competitors would be able to digest. For example, CNRL recently announced a US$6.5 billion deal to buy assets from Chevron Canada. Once the deal is completed, CNRL expects to see a nice boost to cash flow. The purchase increases the company’s stake in the Athabasca Oil Sands Project (AOSP) to 90%. The other part of the deal expands CNRL’s growth potential in the Duvernay shale play in Alberta with light oil and natural gas liquids production and untapped resources.
The board recently increased the dividend by 7%. CNRL has given investors a raise for 25 consecutive years. At the current share price, the stock provides a dividend yield of 4.8%.
TD Bank
TD Bank (TSX:TD) has had a rough run over the past two years. The company was recently hit with a fine of roughly US$3 billion for not doing enough to identify and prevent money laundering in the American operations. TD built a large U.S. retail banking business over the past two decades through acquisitions of regional banks from Maine down the east coast to Florida. In addition to the fine, U.S. regulators have placed an asset cap on the American business. This means TD’s growth ambitions in the American market are on hold for the next few years.
TD is bringing in a new chief executive officer in 2025 to turn the page on the issue. It will take time for the new management team to hammer out a new growth strategy, but TD remains very profitable, maintains a strong capital position, and should eventually get back on track in the American market.
In the meantime, investors can pick up a solid 5.25% dividend yield. Buying TD on big pullbacks has historically proven to be a savvy move for patient investors.
The bottom line on top TSX dividend stocks
Canadian Natural Resources and TD Bank pay attractive dividends that should continue to grow. If you have some cash to put to work in a self-directed TFSA or RRSP portfolio targeting dividends and long-term total returns, these stocks deserve to be on your radar.
