Canadian investors are seeking reliable TSX dividend stocks to buy inside their Tax-Free Savings Account (TFSA) to generate streams of passive income. The market correction is giving dividend investors a chance to acquire top dividend-growth stocks like Fortis (TSX:FTS) and Enbridge (TSX:ENB) at discounted prices.
Fortis is a utility company with $64 billion in assets spread out across Canada, the United States, and the Caribbean. The holdings include power-generation facilities, electricity transmission networks, and natural gas-distribution utilities.
Fortis stock trades near $56.50 per share at the time of writing. That’s off the October plunge below $50 but still way down from the $65 mark the stock hit last May.
Investors who buy the stock at the current price can get a 4% yield. This is lower than the yield offered by other stocks in different sectors including energy and financials, but Fortis deserves to be on your radar for its reliable revenue stream and steady dividend growth.
Fortis gets 99% of its revenue from regulated assets. This means cash flow should be predictable and reliable, even during challenging economic times. Fortis has increased its dividend for 49 consecutive years and is planning average annual increases of at least 4% through 2027, which is supported by the $22.3 billion capital program.
Enbridge trades close to $50 per share at the time of writing compared to $59 at the 12-month high last June. Investors who buy the stock at the current level can get a 7% dividend yield.
Enbridge is a giant in the North American energy infrastructure industry with oil pipelines, natural gas pipelines, natural gas storage, oil export facilities, renewable energy assets, and natural gas distribution utilities. Management is shifting the investment focus away from large new pipeline projects to export opportunities and expansion of the renewable energy holdings. This makes sense as international demand for Canadian and U.S. oil and natural gas is expected to rise in the coming years. At the same time, there is a big push for expansion of renewable energy projects by domestic governments.
Enbridge raised its dividend in each of the past 28 years. The $18 billion capital program should drive revenue and cash flow growth in the near term, and Enbridge has the financial firepower to make strategic acquisitions that can increase profits and further support dividend hikes.
Investors should see dividends continue to increase in the 3% range over the medium term. This is a slower growth rate than long-term investors are accustomed to seeing at Enbridge but is still attractive in the current environment.
Enbridge stock often moves in tandem with the energy producers, but the majority of the revenue stream is not directly impacted by changes in oil and natural gas prices. As such, the pullback appears overdone.
Is one a better bet?
Fortis and Enbridge are both reliable dividend picks for a TFSA portfolio focused on passive income and currently look oversold. If you only choose one, I would probably make Enbridge the first choice today. The 7% yield is hard to ignore, and the distribution should be safe, even as the energy sector goes through bouts of volatility.