The recent pullback in the TSX is giving income investors a chance to buy top Canadian dividend stocks at attractive prices for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio.
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Canadian Natural Resources
Canadian Natural Resources (TSX: CNQ) is off about 10% in the past six months and has been on a downward trend since April.
Weak oil prices are to blame for the decline, offsetting the benefit Canadian oil producers received in the second half of 2024 after the opening of the Trans Mountain pipeline expansion that added 590,000 barrels per day of shipping capacity from Alberta to the coast of British Columbia.
West Texas Intermediate (WTI) oil trades near US$71 per barrel at the time of writing, compared to a high of $87 earlier in the year. Analysts broadly expect oil prices to face headwinds in 2025 due to weak demand from China and rising production in non-OPEC countries, including Canada and the United States.
That being said, CNRL recently increased its dividend by 7% for 2025, driven by strong performances across its assets and new revenue from acquisitions. This is the 25th consecutive annual dividend hike for CNQ shareholders. Investors who buy the stock at the current level can get a dividend yield of 5%.
Near-term volatility is expected, but the long-term outlook should be positive for CNRL and its shareholders. The company is a large natural gas producer, in addition to diversified oil assets. Increased access to Asia via Trans Mountain for oil and rising natural gas demand to power artificial intelligence data centres should bode well for the business in the coming years.
Bank of Montreal
Bank of Montreal (TSX: BMO) is up more than 20% in the past six months. The stock’s rally occurred in step with interest rate cuts by the Bank of Canada and the U.S. Federal Reserve, as investors started to bet that provisions for credit losses (PCL) would finally peak in the fiscal fourth quarter (Q4) of 2024 or fiscal Q1 2025.
Bank of Montreal has a large American business. Loan losses in the division have put pressure on the stock over the past couple of years, and the fiscal Q4 2024 results showed a large jump in PCL. The stock initially plunged on the news but quickly rebounded as the market took the position that the worst is probably now in the rearview mirror. Over the long run, the bank should benefit from growth in the American economy.
Bank of Montreal has paid a dividend every year for nearly two centuries. Investors who buy BMO stock at the current level can get a dividend yield of 4.5%.
As long as interest rates continue to decline and unemployment doesn’t surge, BMO and its peers should see loan defaults decline over the coming year.
The bottom line on top TSX dividend stocks
CNRL and Bank of Montreal are good examples of top Canadian dividend stocks that provide attractive yields. If you have some cash to put to work in a buy-and-hold TFSA or RRSP portfolio focused on dividends, these stocks deserve to be on your radar heading into 2025.
