Dividends are a great source of passive income. However, not all dividend-paying stocks are worth investing in. Thus, investors looking to generate dependable passive income through dividend stocks should focus on companies with a growing earnings base.
Further, the company should have a solid history of paying dividends, despite a challenging economic environment. Thankfully, the TSX has several high-quality dividend stocks that can be easily relied upon for a steady passive-income stream. Among dividend stocks, here are my favourite three.
TC Energy (TSX:TRP) is a low-risk and high-yield dividend stock. Though the company is part of the energy sector, its energy infrastructure business is backed by regulated and contracted assets that witness high utilization and generate predictable cash flows. Further, 95% of its adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) is derived from regulated and contracted assets. Thanks to its high-quality asset base, TC Energy has paid and raised dividend amid all market cycles.
For instance, TC Energy has paid and increased its dividend for 22 consecutive years. Its dividend increased at a CAGR (compound annual growth rate) of 7% during the same period. TC Energy is confident that its dividend will grow at a CAGR of 3-5% in the coming years. This appears achievable, given the strength of its business.
The expansion of its asset base, multi-billion secured capital projects, and benefits from new assets placed into service will support its earnings and dividend payouts. Investors can earn an attractive yield of 5.7% by investing in TC Energy near current levels.
Adding high-quality utility stocks to your portfolio can help generate worry-free passive income for the next decade. This is due to their regulated assets that generate predictable and growing cash flows. Within the utility sector, Fortis (TSX:FTS) is a safe and low-volatility stock to earn steady income, regardless of market conditions.
Fortis owns 10 regulated electric and gas utility businesses and has raised its dividend for 49 years. Looking ahead, the company expects to grow its rate base at a CAGR of 6%. This would expand its earnings base and drive higher dividend payments. Fortis expects a 6% annual growth in its dividend through 2025.
Overall, its low-risk business, expanding rate base, growing renewable power capabilities, and visibility over future dividend growth make it an attractive passive-income stock. Fortis stock has a dividend yield of 4.1%, and its payouts are well protected.
Enbridge (TSX:ENB) is an obvious choice for any passive-income investors. Its stellar dividend growth history of 27 years (the dividend increased at a CAGR of 10%) and high yield of 6.3% makes it a perfect stock to earn worry-free passive income.
Enbridge’s focus on expanding its conventional assets and growing renewable power capabilities augur well for future growth. Moreover, long-term contractual arrangements and inflation-protected EBITDA will likely support its distributable cash flow (DCF).
Further, Enbridge’s solid secured capital projects and strategic acquisitions are expected to support its growth and future dividend payments.