3 Great TSX Dividend Stocks That Still Look Cheap
Written by Andrew Walker at The Motley Fool Canada
A rally is underway in Canadian dividend stocks that took a beating over the past two years. Investors who missed the bounce are wondering which top TSX dividend-growth stocks might still be undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) targeting passive income or a Registered Retirement Savings Plan (RRSP) focused on total returns.
Telus
Telus (TSX:T) was a $34 stock about two years ago before aggressive rate hikes by the Bank of Canada drove investors out of telecoms. Telus trades near $22.50 at the time of writing.
The drop looks overdone, and investors have a shot at some big upside while collecting a solid 6.9% dividend yield.
Telus generated 7.6% growth in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in 2023 compared to the previous year. In 2024, adjusted EBITDA is expected to increase by at least 5.5%, so the company is performing well.
Revenue challenges are expected to persist at Telus International for most of 2024, but the subsidiary accounts for a small part of overall adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). Telus Health and Telus Agriculture and Consumer Goods groups continue to expand and could become significant contributors to growth in the coming years.
Fortis
Fortis (TSX:FTS) owns and operates power generation, electricity transmission, and natural gas distribution assets in Canada, the United States, and the Caribbean. Nearly all the revenue comes from rate-regulated assets. This means cash flow tends to be predictable and reliable.
Fortis grows through a combination of strategic acquisitions and development projects. The current $25 billion capital program is expected to boost the rate base by a compound annual rate of better than 6% through 2028. As a result, cash flow growth should support planned dividend increases of 4-6% per year over that timeframe. Fortis raised the dividend in each of the past 50 years.
The stock trades near $56 at the time of writing. That’s up about 9% in the past month but is still down from the 2022 high of around $65. Investors who buy at the current level can get a 4.2% dividend yield. This is lower than the yield on other stocks right now, but the steady dividend growth over the coming years will boost the return on the initial investment.
Investors with a buy-and-hold strategy have done well buying Fortis on dips over the past 25 years.
TD Bank
TD (TSX:TD) is a contrarian pick today. The stock is under pressure due to investigations in the United States pertaining to the bank’s anti-money-laundering systems. TD recently announced it will take an initial US$450 million charge to cover potential fines. Analysts predict the total penalties could hit US$2 billion. In addition, there is some concern that American regulators could put a cap on TD’s U.S. growth until the issues are cleared up.
Despite the near-term headwinds and the potential for additional downside, TD stock is probably an attractive pick right now for patient investors. The bank will eventually get through the current challenges, and investors will get paid a decent 5.25% yield to wait for the rebound. TD trades near $77 at the time of writing. The stock was $108 in early 2022, so there is good upside potential.
The bottom line on top TSX dividend stocks
Telus, Fortis, and TD have a good track record of delivering dividend growth and attractive long-term returns. If you have some cash to put to work, these stocks look cheap right now and deserve to be on your radar.
The post 3 Great TSX Dividend Stocks That Still Look Cheap appeared first on The Motley Fool Canada.
Should you invest $1,000 in Fortis right now?
Before you buy stock in Fortis, consider this:
The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Fortis wasn’t one of them. The 10 stocks that made the cut could potentially produce monster returns in the coming years.
Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $15,578.55!*
Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 32 percentage points since 2013*.
See the 10 stocks * Returns as of 3/20/24
More reading
Can You Guess the 10 Most Popular Canadian Stocks? (If You Own Them, You Might Be Losing Out.)
How to Build a Bulletproof Monthly Passive-Income Portfolio in 2024 With Just $25,000
The Motley Fool recommends Fortis, TELUS, and Telus International. The Motley Fool has a disclosure policy. Fool contributor Andrew Walker owns shares of Telus.
2024