As volatility in the broader markets escalates, dividend stocks will be in the limelight for their ability to provide reliable passive income. So, here are my three favourite TSX dividend stocks investors can consider for the long-term.
Canadian Natural Resources
When it comes to dividend investing, earnings stability is the most important factor. If the company has earnings visibility along with a sound balance sheet, only then will it be able to pay consistently growing dividends for years. Canadian Natural Resources (TSX:CNQ)(NYSE:CNQ), Canada’s biggest oil and gas company by market cap, is one such stock that offers healthy dividends.
It has increased dividends in the last 22 consecutive years. Even during the pandemic, CNQ kept growing its shareholder payouts when peers trimmed or suspended dividends amid uncertainties. CNQ will pay a total dividend of $4.5 per share in 2022, implying a juicy yield of 7.3%.
Generally, companies that regularly increase dividends are slow-growth and do not offer healthy stock appreciation prospects. However, that’s not been true with CNQ. This stock has soared 40% in the last 12 months and 52% in the last five years.
As oil and gas prices are still higher than last year, this will likely boost CNQ’s free cash flows in the second half of 2022. Thus, investors can expect more dividend hikes and superior shareholder returns, at least for the next few quarters.
Financial markets generally take a U-turn amid economic downturns, and stocks tend to underperform. But that’s not true for all stocks. Some stay resilient and even outperform, which is true of utilities.
The regulated nature of their business and steady demand for their services allows them to continue performing well in almost all business cycles. Thus, they keep growing steadily whether during a recession or an economic expansion. As a result, TSX stocks at large have dropped 11% in the last 12 months, while Canada’s top utility stock Emera (TSX:EMA) has returned 5% in the same period.
Emera is a utility company that delivers regulated electricity and natural gas. It also has operations in energy midstream verticals. It derives almost two-thirds of its earnings from the United States.
It has a history of steady dividend payouts, and according to Emera’s internal forecast model, its annualized dividends are expected to grow in the range of 4-5% over the next two years.
EMA stock currently yields 4.5% and has returned 40% in the last five years. The company’s commitment to the clean energy transition will be the key to future growth. Emera has committed more than $5.3 billion of its capital plan to achieving its net-zero goals.
If you’re looking for a stable passive income, EMA is a decent pick for the long term.
Enbridge has years of strong cash flow generation behind it. In its latest quarter, cash from operations increased over 8% to $5.4 billion. Looking to the future, Enbridge’s stock price continues to look promising. While meeting the demand for energy in the immediate term, Enbridge is also investing in renewables with the ongoing construction of four offshore wind projects and 10 solar projects.
What differentiates Enbridge from the oil and gas production sector is its lower correlation with energy prices. Even if crude oil prices fall, this does not significantly dent Enbridge’s earnings. This is because it generates almost all of its earnings from long-term, fixed-fee contracts.
ENB stock currently yields a whopping 6.7%, way higher than most TSX stocks. Given its earnings stability and sound balance sheet, ENB will likely continue to pay consistently growing dividends for the long-term.