Pensioners and other dividend investors are wondering which TSX stocks are undervalued today, or at least priced reasonably, to add to a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP).
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Fortis
Fortis (TSX:FTS) trades near $62 per share at the time of writing. The stock is close to its 12-month high of around $64 and has almost fully recovered the losses it sustained in 2022 and 2023 when the stock slipped as low as $50 as central banks in Canada and the United States aggressively raised interest rates.
Rate cuts in the past several months have provided a new tailwind for utility stocks. Fortis grows by spending billions of dollars on capital projects and uses debt to fund part of the program. High interest rates cut into profits and eat into cash that can be used to pay dividends or reduce debt. That’s why the stock pulled back in 2022 and 2023.
Now that rates are falling again, investors are more confident the company will hit its target of delivering 4% to 6% per year dividend growth through 2029, supported by the current $27 billion capital plan. Fortis raised the dividend in each of the past 51 years. At the current share price, the stock provides a yield of 4%.
TD Bank
TD (TSX:TD) had a rough 2024. The U.S. fined the bank more than US$3 billion and placed a cap on TD’s American assets as penalties for not having adequate systems in place to detect and prevent money laundering. This puts TD’s expansion plans in the U.S. on hold and has forced the company to abandon its near-term growth targets. A new chief executive officer will take control in the coming days and will need to come up with a new growth strategy.
In the meantime, investors can currently get a solid 5% dividend yield from TD’s stock. The shares traded near $83 compared to $108 three years ago, so there is decent upside potential. The bank remains very profitable and has a solid capital cushion to ride out turbulence or target new acquisitions in other markets.
Enbridge
Enbridge (TSX:ENB) is up nearly 35% in the past year, but investors can still get a dividend yield of 5.9% from ENB stock. The company should benefit from rising demand for natural gas in the coming years as new gas-fired power plants are built to deliver electricity to new artificial intelligence data centres. Enbridge already moves about 20% of the natural gas used in the United States and is now the largest natural gas utility operator in North America after its US$14 billion purchase of three natural gas utilities in the U.S. last year.
Enbridge is working on a $27 billion capital program to drive additional growth. This should support ongoing dividend increases. Enbridge raised the payout in each of the past 30 years.
The bottom line on TSX dividend stocks
Fortis, TD, and Enbridge pay good dividends that should continue to grow. If you have some cash to put to work in a dividend portfolio, these stocks deserve to be on your radar.
