TFSA Passive Income: 2 Great Canadian Dividend Stocks for Retirees to Buy Now

Retirees seeking reliable passive income can now buy top TSX dividend stocks at cheap prices.

| More on:
funds, money, nest egg

Image source: Getty Images

Retirees and other TFSA investors are searching for top TSX dividend stocks that pay safe and growing distributions for portfolios focused on passive income. The market pullback is finally providing a chance to buy some of the best Canadian dividend stocks at undervalued prices.

Fortis

Fortis (TSX:FTS) (NYSE:FTS) is a Canadian utility company with $60 billion in assets located in Canada, the United States and the Caribbean. The businesses include power generation facilities, electricity transmission networks, and natural gas distribution utilities. Fully 99% of the overall revenue stream comes from regulated assets. This means Fortis has a good idea about how much cash flow it can expect to generate each year. That’s good news for investors who want to know the dividends will be safe.

Fortis grows by making strategic acquisitions and investments in new developments. The current $20 billion capital program is expected to increase the rate base from roughy $30 billion in 2021 to more than $40 billion in 2026. Management says the resulting increase in cash flow should support average annual dividend increases of 6% through at least 2025. The International utility has other projects on the drawing board that could get added to the plan. In addition, it wouldn’t be a surprise to see Fortis make another acquisition in the next few years as the utility sector consolidates.

Fortis trades near $60 per share at the time of writing compared to $65 earlier this year. TFSA investors who buy the stock can get a 3.5% yield and simply wait for the dividend increases to boost their tax-free passive income. Fortis raised the dividend in each of the past 48 years.

TD Bank

TD (TSX:TD) (NYSE:TD) rarely goes on sale, but TFSA dividend investors can now buy the stock for close to $85.50 compared to $109 near the beginning of this year. Investors dumped bank stocks in recent months amid rising recession fears. An economic slowdown is likely on the way, but the selloff in TD’s share price looks overdone.

TD remains very profitable. In the first six months of fiscal 2022, TD generated adjusted net income of $7.5 billion compared to $7.1 billion in the same period last year. The big six bank finished fiscal Q2 with a common equity tier one (CET1) ratio of 14.7%. This means TD has significant excess capital to deploy on takeovers, share buybacks, or dividend hikes.

TD is using a good chunk of the funds to make two acquisitions in the United States. The largest is the US$11.3 billion takeover of First Horizon. The deal will add more than 400 branches to the American retail banking business and will make TD a top-six bank in the U.S. market. The diversified bank is also buying Cowen, an investment bank, for US$1.3 billion.

TD stock looks undervalued, but it isn’t without risk. A deep and protracted recession combined with a crash in the Canadian housing market over the next two years would hit TD’s revenue and profits. For the moment, economists predict a short and mild economic downturn and a controlled reduction in home prices.

TD raised its dividend by 13% late last year. Another generous payout increase is likely on the way for fiscal 2023. TD is one of the best dividend-growth stocks in the TSX Index with a compound annual dividend growth rate of roughly 11% over the past 25 years.

The bottom line on top TSX stocks to buy for passive income

Fortis and TD pay attractive dividends that should continue to grow for decades. If you have some cash to put to work in a TFSA focused on passive income, these stocks look cheap right now and deserve to be on your radar.

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 recommends FORTIS INC. Fool contributor Andrew Walker owns shares of Fortis.

More on Dividend Stocks

thinking
Dividend Stocks

Should You Buy BCE Stock for its 8.6% Dividend Yield?

Down over 20% from all-time highs, BCE stock offers you a tasty dividend yield in 2024. But is the TSX…

Read more »

grow dividends
Dividend Stocks

How Long Would It Take to Turn $20,000 Into $100,000 With TSX Dividend Stocks?

Here's how high-quality TSX dividend stocks and the power of compound interest can help grow your investments by 400% or…

Read more »

Paper airplanes flying on blue sky with form of growing graph
Dividend Stocks

2 Soaring Stocks I’d Buy Now With No Hesitation

These two stocks may be the most expensive on the market, but they're high for a reason! And I'm still…

Read more »

Hour glass and calendar concept for time slipping away for important appointment date, schedule and deadline
Dividend Stocks

Invest $374.50 Each Month to Create Passive Income of $288 in 2024

Investing a specific amount each month to create passive income this year is possible with monthly dividend payers.

Read more »

Happy retirement
Dividend Stocks

2 Stocks to Help Turn $100,000 Into $1 Million

If you want to reach $1 million, $100,000 can certainly get you there. Even if you invest in some low…

Read more »

warning or alert
Dividend Stocks

Income Alert: These Stocks Just Raised Their Dividends

There's no shortage of companies that raised their dividends recently. Here's a trio of options to consider buying now.

Read more »

Business success with growing, rising charts and businessman in background
Dividend Stocks

Don’t Look Now, But These 3 TSX Stocks Look Poised for a Nice Rally 

Three TSX stocks are in a downtrend amid headwinds. 2024 may be rocky for them, but they are poised for…

Read more »

protect, safe, trust
Dividend Stocks

3 Safe Dividend Stocks to Beat Inflation

These three dividend stocks are excellent buys to beat inflation, given their solid underlying businesses and high yields.

Read more »