When planning your investment, know what you seek from it. For example, are you looking to generate wealth or passive income? Once you know what you want from your money, you can plan your investments accordingly. A Tax-Free Savings Account (TFSA) is a great tool to let your investment grow tax free. If you seek to earn passive income for a very long time, regularly buying stocks of Dividend Aristocrats can help you generate a sizeable amount of tax-free passive income.
Two dividend stocks to buy
The average person works for 40-45 years from age 20 to 65. If you are in your mid-30s, you have another 25 years to get income before you retire. Let’s say you are at the peak of your career and have been investing aggressively in growth stocks. But it is time to start accumulating dividend stocks in your TFSA for a sizeable passive income.
If you are looking for stocks that can sustain you for the next 25-30 years and continue paying dividends, here are two options:
It is not possible to forecast any company’s 20-30-year future. But these stocks have strong cash flows and a conducive market environment that could help them pay dividends for a long time.
Historical performance does not guarantee future returns, but Canadian Utilities’s 51-year dividend-paying history shows the company’s business and financial efficiency. The company has a utility segment, wherein it transmits and distributes electricity and natural gas. It also has an electricity infrastructure segment, where it produces electricity and stores industrial water, and a retail energy segment. It is increasing its exposure to green energy and has acquired Suncor Energy’s wind and solar power-producing facilities.
Over the years, electricity demand and prices have increased. This scenario is likely to continue for another decade or two as dependence on electricity grows. Canadian Utilities has the infrastructure to tap this demand. It is also expanding its infrastructure without adding significant debt to its balance sheet. Its adjusted earnings are more than sufficient to repay maturing debt and fund capital spending and dividend payments.
Canadian Utilities is investing in electric vehicle (EV) charging infrastructure and decarbonization of fuel to benefit from the EV and green hydrogen revolution. It commissioned two hydrogen projects in Australia to support fleets of hydrogen fuel cell vehicles. These projects could bring in future cash flows for Canadian Utilities.
Another dividend stock worth buying is BCE (TSX:BCE). As the largest telecom operator in Canada, BCE has an edge in the 5G race. The fifth-generation (5G) technology is setting the stage for autonomous vehicles and smart cities. The 5G revolution is several times bigger opportunity than 4G and can generate cash flows for the next several years.
BCE has a record of paying regular dividends for more than 50 years and growing it at an average rate of 5% for the last 13 years. Its history shows that the telco can efficiently pass on the cash flows from 5G subscriptions to shareholders while managing debt.
How to invest in the two dividend stocks
Investing is all about timing, and timing the market is not possible. But you can remove the need for timing the market by investing a small amount monthly in the two stocks.
So, if you invest $250 each in the two stocks every month, you can average out your purchase price as the market moves. In a bear market, you will benefit from a higher number of shares. In a bull market, you will benefit from the higher value of your portfolio.
And you can either withdraw the dividend amount when finances are low or reinvest the dividend when finances are good. You can use the dividend money to buy higher-yield dividend stocks, growth stocks, or exchange-traded funds.