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TFSA Investors: 5 Canadian Dividend Growth Stocks for Your Portfolio

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Dividend investing remains a popular strategy for long-term investors. If you can identify quality growth stocks with attractive dividend yields and solid financials, you can generate massive wealth by reinvestment of these quarterly payouts as well as capital gains.

You can allocate dividend stocks to your Tax-Free Savings Account (TFSA). This registered account is a popular one among Canadians as any withdrawals in the form of dividends or capital gains are exempt from Canada Revenue Agency taxes. We can see that the TFSA is an ideal account for dividend stocks.

The TFSA contribution limit for 2020 is $6,000, while the cumulative contribution room is $69,500. Here, we look at five Canadian companies that have grown dividends for several years and are well poised to continue to do so in the upcoming decade.

Canadian Utilities has grown dividends for 47 consecutive years

Canadian Utilities (TSX:CU) is a domestic giant and a diversified energy infrastructure company. Canadian Utilities stock is trading at $34.8, indicating a forward yield of 5%. It has increased dividends for 47 consecutive years, the longest streak among Canadian companies.

If you bought 1,081 CU shares back in 2000 worth $10,000 you would have generated $486.5 in annual dividends that year. This figure would have risen to $816 in 2010 and $1,882 in 2020.

Further, due to capital gains, your investment would be worth over $36,000 today, after excluding dividend reinvestments. You can see how dividend growth companies have the potential to create long-term wealth.

The company generates 95% of sales from regulated utilities and the rest is from contracted assets, making a dividend cut unlikely. CU has survived multiple recessions and its rate-regulated business ensures a predictable income stream across economic cycles.

In the last 20 years, Canadian Utilities stock has grown at a compound annual growth rate of 6.6% while its dividends have risen by 7%.

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Another dividend giant is Fortis

Fortis is another Dividend Aristocrat that has increased dividends for 46 consecutive years. Its dividend yield stands at 3.6% and the utility heavyweight has increased dividends at an annual rate of 6.8% in the last five years. Utility stocks such as CU and Fortis remain top bets in a market that is uncertain and volatile.

Two energy behemoths in Enbridge and TC Energy

Companies in the energy sector have been decimated in the recent past. Stocks such as Enbridge and TC Energy are trading significantly below their 52-week highs. The slump in crude oil prices due to oversupply coupled with lower demand amid the pandemic has energy stocks trading at a cheap valuation and attractive forward yields.

Enbridge stock has a forward yield of 7.7%, TC Energy’s yield stands at 5.4%. The two pipeline companies generate a significant portion of EBITDA via fee-based contracts and are somewhat immune to commodity prices, making them safe bets in the current scenario.

Canadian Western Bank has a yield of 4.9%

The last stock on this list is Canadian Western Bank. Its shares are trading at $23.6, which is 35% below its 52-week high. The stock’s forward yield is 4.9% after the company increased quarterly dividends to $0.29 per share.

Canadian Western Bank has increased dividends for 27 consecutive years while in the last five years, dividends have risen by 6.7% annually.

In case you allocate $6,000 each in these five stocks, you can generate close to $1,600 in annual dividend payments.

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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 and recommends Enbridge. The Motley Fool recommends FORTIS INC. Fool contributor Aditya Raghunath has no position in any of the stocks mentioned.

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