A Tax-Free Savings Account (TFSA) is a great investment vehicle initiated by the Canadian government in 2009. Anyone above 18 years with a valid social insurance number can open a TFSA account. Although the contributions to TFSA are taxable, the returns on these investments, including capital gains and dividends, are tax-free.
So, with just a few months left in this year, it is the right time to invest if you have not hit your contribution limit. Meanwhile, the rising COVID-19 cases and high unemployment have created headwinds for the markets. So, investors would be better served if they invest in blue-chip companies, as one can’t regain their contribution room back in case of the losses in TFSA. Here are the three blue-chip dividend stocks that you could consider buying.
Canadian Utilities
My first pick would be a diversified utility company, Canadian Utilities (TSX: CU), which has raised its dividends for the past 48 years. The company has announced quarterly dividends of $0.4354 per share for its third quarter at an annualized payout rate of $1.74 per share. So, the company’s forward dividend yield stands at an attractive 5.2%.
The company’s strong underlining businesses with assets worth around $20 billion have supported its dividend payout. It earns 95% of its adjusted earnings from regulated utilities, providing stability to its earnings. At the end of the June quarter, it had cash and cash equivalents of $940 million and had access to $2.25 billion of credit. So, the company’s liquidity position looks strong.
Between 2020 and 2022, Canadian Utilities has planned to invest $3.5 billion in its utility businesses and long-term contracts, which could support its earnings growth. So, given its recession-proof business model, strong liquidity position, healthy growth prospects, and attractive dividend yield, Canadian Utilities could be an excellent addition to your TFSA account.
Enbridge
My second pick would be Enbridge (TSX: ENB)(NYSE: ENB), which runs well diversified, low-risk businesses, with 98% of its adjusted EBITDA supported by long-term take-or-pay and cost of service contracts. These stable cash flows have helped the company raise its dividends for the past 25 years at an 11% compound annual growth rate (CAGR). Its dividend yield currently stands at a juicy 8.5%.
Meanwhile, the weak oil demand has dragged Enbridge’s mainline throughput down, leading to a decline in its stock price. It has lost over 25% of its stock value this year. Despite the decline in its mainline throughput, the company has maintained its 2020 distributable cash flow guidance of $4.50 to $4.80 per share, given its resilient business and predictable cash flows.
Further, the company has continued with its $11 billion secure projects, which would contribute an incremental cash flows of $2.5 billion once put to service. So, given its stable cash flows and healthy liquidity of over $14 billion, Enbridge’s dividends are safe.
Algonquin Power & Utilities
Algonquin Power & Utilities (TSX: AQN)(NYSE: AQN) provides utilities, including electricity, natural gas, and water, to over 800,000 connections across the United States and Canada. It also generates 1.5 gigawatts of power through both renewable and non-renewable power generating facilities. Meanwhile, the company sells 85% of the energy produced from these assets through long-term power purchase agreements. Its earnings and cash flows are therefore mostly stable.
Along with organic growth, Algonquin Power & Utilities also focuses on strategic acquisitions to grow. At the end of the last quarter, its liquidity stood at a healthy $2.37 billion. Driven by its resilient business, the company has returned around 9% this year, comfortably outperforming the broader equity markets.
Meanwhile, its dividend yield currently stands at 4%, with a trailing 12-month payout ratio of 60%. So, the company has room to raise its dividends. The management has also planned to increase its dividends at 7% per annum for several more years. Algonquin Power & Utilities could therefore be a good addition to your portfolio given its capital appreciation and healthy dividend yield.
