Dividend stocks are undoubtedly a solid investment to earn passive income. However, investors should take caution before investing, as dividend payouts are not guaranteed. Thus, not all dividend-paying companies are worth investing in.
Nonetheless, the TSX has several top-quality stocks that have been paying and increasing their dividends for decades. These Canadian dividend stocks have a resilient business model, growing cash flows, and a well-covered payout ratio, which enables them to enhance their shareholders’ value in all market conditions.
In this article, I’ll discuss three Canadian stocks that can help you earn worry-free passive income for the next decade. Further, these dividend powerhouses have a solid dividend payment and growth history. Let’s begin.
Energy companies are famous for their solid dividend payouts. However, as their performance is related to economic activities, one must take caution and invest in the ones with a resilient business model and the ability to pay and grow their dividends across commodity cycles. In the energy sector, investors could consider investing in the shares of Enbridge (TSX:ENB), which has uninterruptedly raised dividends for 28 years
Enbridge’s highly diversified cash flow streams, investments in conventional and renewable assets, and regulated utility-like projects help it to generate low-risk cash flows to support its payouts. Also, its multi-billion dollar secured projects, power purchase agreements, long-term contracts, and regulated cost-of-service tolling framework bode well for cash flow growth.
Enbridge stock offers a stellar dividend yield of 7.24% (based on its closing price of May 29). Further, its payout ratio of 60–70% of distributable cash flow is sustainable, making it a must-have stock to start a passive income stream.
Toronto-Dominion Bank (TSX:TD) is a top stock for earning worry-free passive income. Impressively, this financial services company has been paying a regular dividend for 166 years. Furthermore, its dividend has been growing at an average annualized growth rate of 11% since 1995, the highest among its peers.
It’s worth highlighting that the corporation’s adjusted earnings sport a compound annual growth rate, or CAGR, of approximately 9% in the last five years, which supports higher dividend payments.
Overall, Toronto-Dominion Bank’s diversified revenue streams, strong balance sheet, ability to drive loans growth, solid credit quality, and operating leverage will likely support its earnings and dividend payments. Further, it is likely to benefit from its accretive acquisitions. Toronto-Dominion Bank has a low and sustainable payout ratio of 40–50% and offers a decent dividend yield of 4.85%.
From banks, let’s move on to utility companies that operate low-risk businesses and generate predictable cash flows. Within the utility space, Fortis (TSX:FTS) remains my top pick to generate passive income regardless of market conditions.
Fortis operates 10 regulated utility businesses that account for about 99% of its earnings. Further, its rate base continues to expand. All this means that its payouts are well-covered, while Fortis is well-positioned to grow its future dividends at a healthy pace.
Impressively, it has increased its dividend for 49 consecutive years and expects to grow its dividend by about 4-6% per year in the medium term. Its rate base is projected to increase at a CAGR of 6.2% through 2027, implying that its future payouts are well covered. Overall, Fortis offers a low-risk yield of 3.94%.