Retirees and other income investors are taking advantage of their growing Tax-Free Savings Account (TFSA) contribution room to build portfolios of top TSX dividend stocks that can deliver a reliable and growing stream of passive income. Fortis (TSX:FTS) and Enbridge (TSX:ENB) have good histories of distribution growth and currently trade at discounted prices.
Fortis
Fortis is a Canadian utility company with $64 billion in assets located in Canada, the United States, and the Caribbean. The businesses include power-generation facilities, electricity transmission networks, and natural gas distribution utilities.
The stock reached a high of $65 last April before sliding through the summer and into the fall. At one point, the share price dipped below $50. Since then, bargain hunters have emerged, and the share price is now back up to $59.50.
Fortis should be a good stock to own through a recession. The company gets 99% of its revenue from regulated assets that provide essential services. Companies and households need electricity and natural gas, regardless of the state of the economy.
Fortis grows through acquisitions and organic projects. The current $22.3 billion capital program is expected to boost the rate base enough in the coming years to support annual dividend increases of 4-6% through at least 2027.
Fortis has raised the payout in each of the past 49 years. Investors who buy at the current share price can get a 3.8% dividend yield.
Enbridge
Enbridge trades for less than $53 at the time of writing and provides a 6.75% dividend yield. The stock topped $59.50 last June but pulled back, along with the broader energy sector through the back half of last year.
Enbridge isn’t an oil and natural gas producer. The company simply moves the fuels from the production sites to storage locations, utilities, refineries, or export facilities and charges a fee for providing the service. Changes in the prices of oil and natural gas have a limited direct impact on Enbridge’s revenue stream, so it doesn’t make much sense for the stock to drop when oil prices tank. As long as fuel demand remains strong, Enbridge should generate good revenue and cash flow.
The company’s pipelines get the most attention, but Enbridge also has natural gas utilities and a growing renewable energy business to help balance out the revenue stream and provide decent growth opportunities. Enbridge is also expanding into the export segment with the purchase of an oil export terminal in 2021 and has a stake in a new liquified natural gas (LNG) terminal being built in British Columbia.
Domestic and international demand for Canadian and American oil and natural gas are expected to grow in the coming years. Enbridge is positioned well to benefit.
The board raised the dividend by more than 3% for 2023. Investors have received a dividend increase for 28 consecutive years.
Is one a better TFSA dividend pick today?
Fortis and Enbridge are top dividend stocks that should continue to increase their payouts. Both deserve to be on your radar. If you only buy one, I would probably make Enbridge the first choice right now. The stock still appears oversold and provides a better dividend yield for investors primarily focused on generating TFSA passive income.
