The market correction is giving investors who missed the rally off the 2020 crash a new opportunity to buy top TSX dividend stocks for self-directed Tax-Free Savings Account (TFSA) and Registered Retirement Savings Plan (RRSP) portfolios.
Contrarian investing
Buying stocks when they are out of favour takes courage. Cheap stocks often get a lot cheaper before they recover. In some cases, they never bounce back.
That’s why it is important to look for industry leaders with solid revenue streams that come from essential services. Good stocks to own have long track records of dividend growth. The share prices can go through slumps that can last for months or years, but they tend to drift higher over the long haul.
Buying pullbacks increases the dividend yield on the initial investment and sets the investor up for attractive total returns on the recovery. It is easier to stomach additional downside in the share price when you are getting a decent yield on the money originally invested.
Enbridge
Enbridge (TSX:ENB) provides a 7.4% dividend yield at the time of writing. Even if the share price never moves above the current price near $48, the stock is attractive.
Enbridge’s vast pipeline infrastructure moves 30% of the oil produced in Canada and the United States. The company also has an oil export terminal in Texas. Global oil demand is expected to climb for years, even as the world transitions to renewable energy. Getting new major oil pipeline projects approved and built is nearly impossible these days, so the existing infrastructure should increase in value.
Enbridge’s natural gas utility assets in Canada distribute fuel to millions of commercial and residential customers. On the export side, Enbridge is a partner in the Woodfibre liquified natural gas (LNG) export project being built in British Columbia. Natural gas has a bright future as utilities around the globe are using the fuel to replace coal and oil to produce electricity.
Wind, solar, and hydroelectric power have their limitations, and countries will need to have reliable, fuel-fired, power-generation capacity to meet demand surges or to cover for times when there is no wind to move turbines, no sunlight to hit solar panels, or no water running through the hydroelectric turbines.
Enbridge has a $17 billion capital program on the go to drive revenue growth. The board has raised the dividend in each of the past 28 years.
BCE
BCE (TSX:BCE) is another industry leader with a great track record of dividend growth. BCE increased the dividend by at least 5% in each of the past 15 years. The stock has long been a top pick among retirees seeking passive income, but BCE has also delivered great total returns for buy-and-hold investors who have used the generous dividends to buy new shares of BCE stock.
At the time of writing, BCE trades near $55.50 per share compared to the 2022 high of around $65. the pullback appears overdone, considering the quality of the core revenue stream and the fact that total revenue and free cash flow are expected to rise in 2023 compared to last year.
The bottom line on top dividend stocks for retirement investors
Enbridge and BCE are good examples of high-yield dividend stocks with distributions that should continue to grow. If you have some cash to put to work in a TFSA or RRSP, these stocks look cheap today and deserve to be on your radar.
