TFSA Investors: Steady Utility Stocks to Buy Now and Cash In for Life

Income-seeking investors can buy and hold blue-chip utility companies such as Fortis in their TFSAs right now.

| More on:
Electricity high voltage pole and sky

Image source: Getty Images

The Tax-Free Savings Account (TFSA) is ideal to hold a portfolio of dividend stocks, as it is a tax-sheltered registered account. Dividend stocks enable investors to create a recurring revenue stream and benefit from long-term capital gains. Further, any income generated in a TFSA is exempt from Canada Revenue Agency taxes.

Keeping these factors in mind, let’s look at three top utility stocks Canadians can hold in their TFSA. Utility companies are recession resistant and produce cash flows across business cycles. You can withdraw the dividends distributed by these TSX stocks or reinvest them to benefit from compounded gains.

Fortis

Fortis (TSX:FTS)(NYSE:FTS) is one of the largest Canadian companies on the TSX, which has increased its assets from $390 million in 1987 to $60 billion currently. Its affiliated companies include 10 electric and gas operations that serve more than three million customers in Canada, the U.S., and the Caribbean.

Fortis has increased dividends for 48 consecutive years and is expected to increase payouts by 6% through 2025. It pays annual dividends of $2.14 per share, indicating a forward yield of 3.7%.

The company continues to expand its base of cash-generating assets and will invest close to $4 billion in the next five years in clean energy, driving future cash flows higher.  

Fortis stock has returned 13% to shareholders annually over the last two decades, easily outpacing the broader markets.

Emera

From its beginnings as a single utility located in Nova Scotia, Emera (TSX:EMA) is now a utility giant with over $34 billion in assets. The company serves 2.5 million customers in North America, and its portfolio of high-quality utilities should allow Emera to deliver long-term value to shareholders.

Emera pays investors annual dividends of $2.65 per share, suggesting a forward yield of 4.3%, which is quite tasty. In the last 30 years, Emera has increased dividends at an annual rate of 13.5%, making it extremely attractive to income-seeking investors.

Emera stock is valued at 20 times forward earnings, and the stock is trading at a discount of 9% compared to consensus price target estimates. After accounting for its dividend yield, total returns might be closer to 13% in the next year.

Canadian Utilities

The final stock on my list is Canadian Utilities (TSX:CU), a company that has increased its dividend every year for the last 50 years. It is the longest streak of dividend increases for any Canadian company. Canadian Utilities aims to grow dividends in line with its sustainable earnings, which are linked to its regulated and contracted investments.

Canadian Utilities emphasized that its contracted and regulated earnings base is the foundation for consistent dividend increases. Between 2022 and 2024, the company expects to invest $3.5 billion in regulated utility and commercially secured energy infrastructure projects.

This investment should drive earnings and cash flows higher, and $3.3 billion will be deployed on regulated utilities.

Given annual dividends of $1.78 per share, Canadian Utilities offers investors a dividend yield of 4.4%.

The Foolish takeaway

These blue-chip companies will create a passive-income stream for investors. An investment of $10,000 in each of the three stocks will help investors generate $1,230 in annual dividend payments.

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.

Fool contributor Aditya Raghunath has positions in FORTIS INC. The Motley Fool recommends EMERA INCORPORATED and FORTIS INC.

More on Dividend Stocks

woman data analyze
Dividend Stocks

These U.S. Stocks Are No-Brainer Additions to Your Portfolio

Buy these two no-brainer U.S. stocks if you want to gain exposure to international stocks in your self-directed portfolio.

Read more »

Value for money
Dividend Stocks

1 Value Stock Every Canadian Investor Should Own

This value stock not only has a solid present, but a stable future at incredibly cheap and even oversold prices!

Read more »

sale discount best price
Dividend Stocks

Passive-Income Alert: 2 Great Canadian Dividend Stocks Trading at Cheap Prices

TFSA investors can now buy top TSX dividend stocks at discounted prices for a portfolio focused on passive income.

Read more »

Growing plant shoots on coins
Dividend Stocks

Long-Term Investing: 2 Top Dividend-Growth Stocks to Power Your Portfolio

While many growth stocks remain under pressure in this environment, here are two top dividend-growth stocks to buy now and…

Read more »

edit Safety First illustration
Dividend Stocks

2 of the Safest Dividend Stocks on Earth Right Now

Royal Bank of Canada (TSX:RY)(NYSE:RY) is one of the safest stocks on earth, historically speaking.

Read more »

TFSA and coins
Dividend Stocks

TFSA 101: How Retirees Can Earn $407.50 Per Month Tax Free for Decades

Retirees can buy top TSX dividend stocks at cheap prices right now for a TFSA focused on passive income.

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

TFSA Monthly Passive Income: 2 Canadian Dividend Stocks to Buy Now and Hold Forever

TFSA investors can buy these two Canadian dividend stocks right now to earn handsome monthly passive income.

Read more »

A meter measures energy use.
Dividend Stocks

1 Top TSX Utility Stock for Beginners to Buy and Hold Forever

Fortis (TSX:FTS)(NYSE:FTS) is a company keeping the lights on throughout Canada. Here’s why it can be an excellent pick for…

Read more »