2 Top TSX Stocks to Buy Now for 2022

These two top TSX stocks should perform well in 2022. Here’s why.

| More on:
Make a choice, path to success, sign

Image source: Getty Images

The market rally in 2021 has driven many top TSX stocks to new all-time highs. Investors are now wondering which top stocks might still be undervalued and would be good to buy for the anticipated economic recovery in 2022.

TD

TD (TSX:TD)(NYSE:TD) trades near $84 per share at the time of writing compared to the 2021 high around $89. The pullback looks like a good opportunity to buy TD heading into next year.

Why?

Persistent inflation could be the theme in 2022, and pundits are starting to predict interest rate hikes in the United States and Canada in the next 12 months. Bond markets are already reacting, with yields on the U.S. 10-year treasuries creeping back up to 1.5%.

A sharp spike in interest rates could trigger higher loan defaults, but rising interest rates tend to be net positive for banks, as they can generate higher net interest margins and receive better returns on the cash they have to hold to cover deposits and protect against loan losses.

TD finished fiscal Q3 2021 with a CET1 ratio of more than 14%. That’s probably an excessive capital position at this stage of the pandemic, and investors should see some of the funds flow to them through higher dividends and share buybacks next year. Investors who buy TD now can pick up a 3.75% dividend yield.

Canadian Natural Resources

Canadian Natural Resources (TSX:CNQ)(NYSE:CNQ) is a leader in the Canadian energy sector with vast resources and production facilities that cover the full span of the hydrocarbon industry. The company is widely known for its oil sands operations, but it also has offshore oil, conventional light and heavy oil, natural gas, and natural gas liquids production.

WTI oil is now above US$75 per barrel. Brent crude just topped US$80, and natural gas prices are at seven-year highs. A rebound in fuel demand combined with restricted production growth will likely keep oil and natural gas prices elevated through at least 2022.

This company was already generating significant profits earlier this year, and the continued rise in oil and gas prices will drive free cash flow even higher. CNRL is using excess cash to buy back shares and reduce debt. The board raised the dividend by 11% for 2021, and another big payout increase should be on the way in 2022.

The stock has enjoyed a nice rally off the 2020 lows but still looks cheap. Investors who buy CNQ stock at the current price near $45 can pick up a solid 4% dividend yield and wait for the next distribution increase. It wouldn’t be a surprise to see CNRL raise the dividend by 20% in Q1 next year.

Energy stocks also tend to be good bets for investors who are concerned about persistent inflation.

The bottom line on top stocks for 2022

TD and Canadian Natural Resources are leaders in their respective industries. The two companies have long track records of dividend growth and could announce big payout increases in 2022. The stocks appear reasonable at current prices and should deliver solid long-term returns.

If you have some cash to put to work, these two top TSX stocks probably deserve to be on your buy list heading into 2022.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

The Motley Fool has no position in any of the stocks mentioned. Fool contributor Andrew Walker owns shares of Canadian Natural Resources and TD Bank.

More on Dividend Stocks

Canadian Dollars bills
Dividend Stocks

3 Monthly-Paying Dividend Stocks to Boost Your Passive Income

Given their healthy cash flows and high yields, these three monthly-paying dividend stocks could boost your passive income.

Read more »

Make a choice, path to success, sign
Dividend Stocks

The TFSA Blueprint to Generate $3,695.48 in Yearly Passive Income

The blueprint to generate yearly passive income in a TFSA is to maximize the contribution limits.

Read more »

hand stacks coins
Dividend Stocks

3 Ultra-High-Yield Dividend Stocks You Can Buy and Hold for a Decade

These three high-yield dividend stocks still have some work to do, but each are in steady areas that are only…

Read more »

senior man and woman stretch their legs on yoga mats outside
Dividend Stocks

TFSA: 2 Canadian Stocks to Buy and Hold Forever

Here are 2 TFSA-worthy Canadian stocks. Which one is a good buy for your TFSA today?

Read more »

calculate and analyze stock
Dividend Stocks

This 5.5% Dividend Stock Pays Cash Every Single Month!

This REIT may offer monthly dividends, but don't forget about the potential returns in the growth industry its involved with.

Read more »

Silver coins fall into a piggy bank.
Dividend Stocks

How to Use Your TFSA to Earn up to $6,000 Per Year in Tax-Free Passive Income

A high return doesn't mean you have to make a high investment -- or a risky one -- especially with…

Read more »

path road success business
Dividend Stocks

2 High-Yield Dividend Stocks to Buy Hand Over Fist and 1 to Avoid

High yields are great and all, but only if returns come with them. And while two of these might, another…

Read more »

Man holds Canadian dollars in differing amounts
Dividend Stocks

This 7% Dividend Stock Pays Cash Every Month

A high dividend yield isn't everything. But when it pays out each month and offers this stability, it's worth considering!

Read more »