Canadian savers are looking for ways to build self-directed retirement portfolios in their Tax-Free Savings Accounts (TFSAs) and Registered Retirement Savings Plans (RRSPs). The market pullback that has occurred over the past year is giving investors a chance to buy top TSX dividend stocks at discounted prices.
Buying dips takes courage, but patient investors in good dividend stocks should eventually be rewarded with higher prices, and you get paid well while you wait for the rebound.
Fortis
Fortis (TSX:FTS) trades near $54 per share at the time of writing compared to more than $64 at the high point last year.
The drop looks overdone, considering the company gets most of its revenue from rate-regulated utility assets like power-generation facilities, electricity transmission networks, and natural gas distribution operations.
Fortis is working on a $22.3 billion capital program that will increase the rate base by an average of about 6% per year over five years. The resulting boost in cash flow is expected to support annual dividend increases of 4-6% through 2027.
Fortis raised the payout in each of the past 49 years. The current distribution provides a 4.2% dividend yield.
Telus
Telus (TSX:T) trades below $24 per share at the time of writing compared to more than $34 at the 2022 peak. The drop looks exaggerated and gives investors a chance to buy a great Canadian dividend stock at a cheap price.
Troubles at its Telus International subsidiary are adding pressure to a stock that was already down due to the impact of higher interest rates. Borrowing costs are up, and this can cut into cash that is available for distributions. The market, however, is probably overplaying the impact of these issues.
Telus reduced guidance for 2023, but the company still expects to deliver solid results driven by growth in the core mobile and internet subscription businesses. These are essential services that should generate good revenue streams even if the economy goes through a recession.
Telus has increased the dividend annually for more than two decades and now offers a 6.1% dividend yield.
CIBC
CIBC (TSX:CM) is a contrarian pick today. The stock trades near $55.50 at the time of writing compared to more than $80 in early 2022.
Bank stocks are largely out of favour right now, as investors worry the chaos that hit U.S. regional banks earlier this year is the tip of the iceberg for problems that are yet to come. The U.S. Federal Reserve and the Bank of Canada are increasing interest rates to try to cool off the economy and bring the jobs market into balance as a means to get inflation back down to their 2% targets. The efforts appear to be working, but the market fears a recession might be necessary to get the central banks across the goal line.
If corporate bankruptcies soar due to high debt costs, and there is a resulting spike in unemployment, CIBC and its peers could take a hit as commercial and residential borrowers default.
At this point, the pullback looks overdone. CIBC has a solid capital cushion and remains very profitable. The board increased the dividend when the bank announced the fiscal second-quarter 2023 results, so there shouldn’t be too much concern about the safety of the distribution. Investors can now get a 6.25% dividend yield from CM stock.
The bottom line on top stocks for a retirement portfolio
Fortis, Telus, and CIBC pay attractive dividends that should continue to grow. Ongoing volatility is expected in the coming months, but if you have some cash to put to work in a TFSA or RRSP, these stocks already look cheap today and deserve to be on your radar.
