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A market correction may be hard to watch, but investors building retirement portfolios can take advantage of the downturns to get the top TSX dividend stocks at low value. rate for their self-directed Registered Retirement Savings Plan (RRSP) or Tax-Free Savings Account (TFSA).
TD Bank
TD Bank (TSX:TD) looks cheap, trading near $83 per share today compared to $93 in February and above $108 by early 2022.
The decline in bank stocks over the past 18 months has been driven by rising fears of a recession. The high-profile failure of several regional US banks a few months ago did not help bolster investor sentiment.
It’s on the horizon, but Canada’s big banks have enough capital to get through some tough times. TD actually has the largest capital after it decided to abandon the US$13.4 billion all-cash acquisition of First Horizon. TD ended the fiscal second quarter (Q2) of 2023 with a common equity tier-one (CET1) ratio of more than 15%. That’s well above the conservative 11.5% the regulator is asking Canadian banks to have by the end of the year.
In fact, TD is sitting on too much cash, and this is one reason the stock is out of favor. Near-term revenue growth will not reach previous guidance of 7-10% due to the canceled First Horizon deal. TD will now take a slower approach to expanding its American business by building its branch network organically.
TD will also use some of the extra cash to buy back stock. As a way to reward shareholders for their patience, management may decide to announce an increase in the base dividend or bonus dividend in the coming months. Another acquisition in another market is also possible as bank valuations are under pressure.
TD has an excellent track record of increasing distributions with a compound annual dividend growth rate that has averaged better than 10% over the past quarter century. Investors who buy the stock at the current price will get a 4.6% dividend yield.
Enbridge
Imagine receiving a 7.25% yield on a stock that increases its dividend every year for 28 years. That’s exactly what investors get Enbridge (TSX:ENB).
Rising interest rates drive up borrowing costs for capital-intensive businesses such as pipeline companies and utilities. This will leave a pinch of cash available for distribution. A jump in rates paid on Guaranteed Investment Certificates (GICs) could also attract funds from Enbridge and its high-yield peers.
On the positive side, Enbridge expects adjusted earnings per share and distributable cash flow to grow in the coming years, supported by a $17 billion capital program.
If you’re looking for quality passive income, Enbridge is currently priced at less than $49 at the time of writing compared to $59 in June of last year.
The bottom line is top dividend stocks
TD Bank and Enbridge pay attractive dividends that should continue to grow. If you have money to put to work in a self-directed retirement fund, these stocks deserve to be on your radar.