Investors are drawn to top Canadian dividend stocks for a number of reasons.
Reliable dividend-growth stocks are attractive picks for income investors, such as retirees, who rely on the distributions in combination with their pension payments. Holding the stocks in a TFSA is a smart strategy in this situation.
Younger investors might buy dividend stocks as part of their retirement-planning process. Holding the stocks inside RRSP or TFSA accounts and using the distributions to buy new shares can help build a substantial retirement fund over the course of a few decades.
Fortis is a North American utility company with electric transmission, power generation, and natural gas distribution assets located in the United States, Canada, and the Caribbean.
The company has come a long way over the past 100 years, starting out as a small power provide in eastern Canada to become a powerhouse with $50 billion in assets today. Management does a good job of growing the businesses through strategic acquisitions and investments in the existing businesses.
The current capital program will see the company invest about $3.5 billion per year over the next four years. As a result, the increase in the rate base should support dividend hikes in the order of 6% per year through 2023. The current payout provides a yield of 3.4%.
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Enbridge is a giant in the North American energy infrastructure sector. The company transports a significant part of the oil, natural gas, and gas liquids that go from producers to their customers across Canada and throughout the United States.
The stock took a hit in recent years amid investor concern regarding growth opportunities. In addition, the market started to get a bit uncomfortable with the balance sheet. Management has since addressed a number of the internal issues, and while the stock has recovered from a 2018 around $38 to $46.50, more upside should be on the way.
Enbridge has already signed deals to monetize $8 billion in non-core assets and simplified its structure through the buyback of four subsidiaries. It is now able to self-fund the ongoing $16 billion in capital projects and the dividend. Big pipeline developments might be harder to get built, but Enbridge has opportunities for smaller add-on projects throughout its asset base.
The board hiked the distribution by 10% this year. Another 10% increase is expected for 2020 and then 5-7% per year over the medium term. At the time of writing, investors can pick up a 6.3% yield.
Is one more attractive?
Both stocks should continue to be reliable buy-and-hold dividend picks. At this point, I would probably make Enbridge the first choice as an income pick and split a new investment between the two stocks for a retirement fund.
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.
The Motley Fool owns shares of Enbridge. Fool contributor Andrew Walker owns shares of Enbridge. Enbridge is a recommendation of Stock Advisor Canada.