Canadian investors are wondering where they can find good value in TSX stocks right now for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio focused on dividends and total returns.
Buying dividend stocks on dips requires the patience to ride out additional turbulence, but there can be decent upside on a rebound.
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TD Bank
TD Bank (TSX: TD) trades near $84 per share at the time of writing. The stock is above the 12-month low of nearly $73 but is still down from the $108 it reached in early 2022 before starting an extended pullback.
Bank stocks broadly declined through 2022 and much of 2023 as a result of hikes to interest rates in Canada and the United States. The central banks needed to raise interest rates to get inflation under control. In normal conditions, higher interest rates are a net positive for the banks as they enable banks to generate better net interest margins. The steep increase in rates over a short period of time, however, put borrowers with too much debt in a tough situation. This forced TD and its peers to significantly raise provisions for credit losses.
As soon as the central banks started to cut interest rates in 2024, the bank sector rallied, but TD didn’t participate. The stock remained under pressure due to problems in the American operations. Regulators fined TD more than US$3 billion last year and put a cap on its U.S. assets as penalties for not having adequate systems in place to prevent money laundering.
TD now has a new chief executive officer. The bank is working through a strategy review to determine new opportunities for growth while the U.S. business remains under the asset cap. Investors will need to be patient, but the worst should be over for the stock. TD’s Canadian business remains strong, and the bank has extra capital on hand to make strategic acquisitions in other markets or to grow organically.
At the current share price, TD provides a dividend yield of 5%.
Enbridge
Enbridge (TSX: ENB) enjoyed a nice rally over the past year, supported by falling interest rates in Canada and the United States. The company uses debt to fund part of its growth program, so lower borrowing expenses are positive for profits and can free up cash that can be used for reducing debt or distributions to shareholders.
Enbridge is also getting a boost from its US$14 billion purchase of three natural gas utilities in the United States last year. At the same time, Enbridge is working on a $26 billion capital program that will help raise adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) by 7% to 9% through 2026. Distributable cash flow is expected to increase at a rate of 3%. This should support ongoing dividend growth.
Enbridge’s share price recently pulled back from $64.50 to $58.50. It currently trades near $61.50, so investors can still buy the dip. At the current level, the stock provides a dividend yield of 6.1%.
The bottom line on top TSX stocks
TD Bank and Enbridge pay attractive dividends that should be safe. If you have some cash to put to work in a buy-and-hold portfolio focused on dividends, these stocks deserve to be on your radar.
