TFSA Investors: 2 Dividend-Growth Stocks to Grow Your Income

Here is why Fortis Inc. (TSX:FTS)(NYSE:FTS) and Atco Ltd. (TSX:ACO.X) stocks should be part of your TFSA portfolio.

| More on:
The Motley Fool

Canada’s Tax-Free Saving Account (TFSA) is a great investment vehicle to grow your income without having to worry about the taxman.

And if you load up your TFSA with some quality dividend-growth stocks, you’ll see how quickly your portfolio will grow with the power of compounding.

With many employers phasing out pensions and other contributions, a portfolio of dividend-growth stocks can provide safe retirement income that should keep up with inflation.

Fortis Inc. (TSX:FTS)(NYSE:FTS) and Atco Ltd. (TSX:ACO.X) are the two dividend-growth stocks that you should consider for your long-term dividend portfolio. Let’s find out why.  

Payout history

When you start looking for quality dividend-growth stocks, one important step to separate the chaff from the wheat is to look for companies with long distribution histories.

Obviously, you can’t just rely on the past to predict the future, but distribution hikes tell you about the management’s priorities. So, if you find companies that already have strong growth track records, it’s a strong signal that you’re making a right pick.

Both Fortis and Atco have 43 and 22 years, respectively, of dividend hikes on their side, making them very attractive stocks for dividend-growth investors.

Fortis, with a 3.5% dividend yield and about 6% expected growth in its annual dividend payouts through 2021, is one of the best dividend-growth stocks in the Canadian market.

Between 2006 and 2016, Fortis’s annual distribution increased from $0.67 to $1.53, which is a CAGR of 9%.

In the utility space, if you’re looking for a slightly cheaper option, then ATCO is your best bet.  

ATCO, through its 53% ownership of Canadian Utilities Limited (TSX:CU), is the owner of power plants, electric transmission infrastructure, and gas pipelines. It also owns 75% of a small division that manufactures temporary structures used on things like construction and oil and gas sites, with Canadian Utilities owning the other 25%.

This ownership structure makes ATCO very diversified and capable of producing robust cash flows.

ATCO’s dividend yield at 2.85% has become very attractive after its shares declined ~11% in the past three months on concerns that Bank of Canada’s interest rate hikes will diminish the investment appeal of utility stocks. Trading at $46 a share, its stock is down 14% down from the 52-week high, while the dividend yield is highest at least in the past five years.

Which one is better?

Both of these utilities have stellar dividend-growth histories. Very few Canadian companies can match those kinds of dividend-growth rates.

The recent pullback in ATCO stock price makes it a better buy when compared to Fortis if you have to pick one for your TFSA portfolio. For long-term buy-and-hold investors, both stocks make perfect sense.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Haris Anwar has no position in the companies mentioned.

More on Dividend Stocks

Specialty Brands faces higher raw materials costs.
Dividend Stocks

What’s Next for Premium Brands Stock?

Shares of the specialty food production and distribution company have fallen about 25% since last October.

Read more »

Double exposure of a businessman and stairs - Business Success Concept
Dividend Stocks

2 Interesting Buys in Any Market

Here are two intriguing buys in any market climate that offer defensive appeal as well as growth and income earning…

Read more »

Dividend Stocks

TFSA Investors: 3 TSX Stocks for Tax-Free Passive Income

These Canadian corporations have strong visibility over future earnings and dividend payouts.

Read more »

Simple life style relaxation with Asian working business woman healthy lifestyle take it easy resting in comfort hotel or home living room having free time with peace of mind and self health balance
Dividend Stocks

Lazy Landlords: 3 Cheap Canadian REITs to Buy in May 2022

You can become a passive landlord today by investing in Canadian REITs. Here are three cheap REITs to consider this…

Read more »

Target. Stand out from the crowd
Dividend Stocks

4 High-Yield TSX Stocks to Buy Ahead of Their Ex-Dividend Dates

If you have some cash lying idle, consider these high-yielding TSX stocks.

Read more »

growing plant shoots on stacked coins
Dividend Stocks

Passive Income: 3 TSX Stocks With Rapidly Growing Dividends

Worried about inflation? Here are three passive-income stocks to buy that pay rapidly growing dividends.

Read more »

Family relationship with bond and care
Dividend Stocks

Retirees: 4 Safe Stocks to Buy for Decent Passive Income

Retirees can offset the impact of runaway inflation by buying safe dividend stocks to create more cash flows.

Read more »

Canadian energy stocks are rising with oil prices
Dividend Stocks

3 Canadian Energy Stocks to Buy for Reliable Passive Income

Canadian energy stocks are gushing cash. Here's three top stocks that are perfect buys for reliable passive income.

Read more »