Dividends are a valuable source of passive income for retirees. However, as stocks are volatile and carry higher risk, retirees should focus on companies with conservative business models, well-protected payouts, and the ability to grow their earnings consistently. Let’s look at a few Canadian companies that are solid investments to generate worry-free passive income.
Fortis
There are good reasons why Fortis (TSX: FTS)(NYSE: FTS) is a safe stock to buy. The company operates a conservative utility business. Thanks to its low-risk and resilient business, Fortis stock remains stable amid wild market swings. Moreover, its rate-regulated asset base generates predictable cash flows that add visibility to its future payouts, which is crucial for income investors.
It has 10 regulated utility businesses that generate roughly all of its earnings. It means that its payouts are safe, as most of its earnings come through low-risk assets. It’s worth mentioning that Fortis has raised its dividend for the past 48 years, which supports my bullish outlook. What’s more, it projects to increase its dividend further by about 6% annually through 2025.
The outlook is based on its growing rate base that drives its earnings. Its strong capital investments would expand its rate to $41.6 billion in the next five years, which is encouraging.
It remains well positioned to drive its dividend payments higher irrespective of market conditions. It pays dividend every quarter and yields about 3.4% at current levels.
Canadian Utilities
Speaking of reliable income stocks for retirees, Canadian Utilities (TSX: CU) is another top bet. Canadian Utilities stock has a dividend-growth history of 50 years in a row and low-risk business model.
Like Fortis, Canadian Utilities’s rate-regulated and contracted assets consistently generate strong cash flows that allow it to boost shareholders’ returns irrespective of the market conditions.
Furthermore, the company continues to invest in regulated and contracted assets, which expand its earnings base and support higher dividend payouts. Canadian Utilities generates about 95% of its adjusted earnings from the regulated utility assets, implying that its payouts are well protected.
Its solid dividend growth history, conservative business, continued rate base growth, and energy transition opportunities will likely drive its earnings and payouts. Retirees can earn a yield of 4.4% by investing in Canadian Utilities stock.
TC Energy
With 95% of its adjusted EBITDA coming from the regulated and contracted business, TC Energy (TSX: TRP)(NYSE: TRP) is among the top companies to rely on for worry-free dividend income. It has a solid history of dividend payment and growth (paid and raised dividends for 22 consecutive years). Moreover, the company eyes about 3-5% growth in its annual dividend in the coming years.
As stated above, TC Energy’s payouts are supported by its high-quality asset base. Furthermore, the high utilization rate and strong energy demand suggest that it could continue to deliver steady earnings growth and easily achieve its dividend-growth guidance.
Through its solid secured capital program, additional growth projects, and energy transition opportunities, TC Energy remains confident of generating enough cash to fund its growth program and payouts. Meanwhile, cost-saving initiatives will likely cushion its bottom line. It offers a solid yield of about 4.9% at current levels.
