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The TSX is near its record high, but investors can still find good Canadian dividend stocks trading at reasonable prices for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio.
Fortis
Fortis (TSX:FTS) is a Canadian utility company with assets spread out across Canada, the United States, and the Caribbean.
The stock is up about 15% over the past six months, largely driven by cuts to interest rates in Canada and the United States. Fortis uses debt to fund part of its growth initiatives. As interest rates soared in 2022 and 2023 investors sold the stock on concerns that higher debt expenses would cut into cash available for distributions. Elevated borrowing costs can also make some projects less attractive, which could reduce the growth outlook.
Now that the Bank of Canada and the U.S. Federal Reserve are cutting interest rates, investors are more optimistic about the outlook for utility stocks.
Fortis generates most of its revenue from rate-regulated businesses, including natural gas distribution, electricity transmission, and power generation. This means cash flow tends to be reliable and predictable, which is a good situation for investors who rely on Fortis for its steady dividend growth.
Fortis has increased the dividend in each of the past 51 years. The board plans to raise the dividend by 4% to 6% per year through at least 2029, supported by the current $26 billion capital program.
At the time of writing, investors can get a 3.9% dividend yield from Fortis.
Telus
Telus (TSX:T) is a contrarian pick today. The stock is down about 7% in 2024 compared to a gain of more than 20% for the TSX.
Revenue declines at its Telus Digital subsidiary have hindered the stock over the past two years. In addition, the core internet and wireless businesses have faced price wars and an uncertain regulatory environment.
Despite the headwinds, Telus continues to deliver stable results. The company reported an 11% increase in adjusted net income in the third quarter (Q3) of 2024. Telus has reduced staff by roughly 6,000 positions to streamline the business and reduce operating expenses. The company’s Telus Health division is performing well and has the potential to be a steady driver of growth in the coming years. Price wars in Canada might ease by the end of 2025 as providers start to focus more on margins.
Telus just raised its dividend for the second time in the past 12 months, extending its multi-year dividend-growth streak. The total dividend increase for the year is 7%.
Telus stock trades near $22.25 at the time of writing compared to $34 at one point in 2024. Investors who buy Telus at the current level can get a dividend yield of 7.25%.
The bottom line on top TSX dividend stocks
Fortis and Telus are good examples of top TSX dividend stocks with solid distributions that should continue to grow. If you have some cash to put to work in a self-directed TFSA or RRSP, these stocks deserve to be on your radar.
