Pensioners and other investors seeking reliable and growing passive income are wondering which TSX stocks are safe to buy, as the market prepares for a potential recession. Fortis (TSX:FTS) and Enbridge (TSX:ENB) are popular picks for their long track records of dividend growth. The recent pullback in the share prices has investors wondering if one is now undervalued and good to buy for a portfolio focused on dividends.
Fortis owns and operates about $65 billion in utility assets in Canada, the United States, and the Caribbean. The company gets nearly all of its revenue from regulated businesses that include power generation, electricity transmission, and natural gas distribution. Companies and households need to keep the lights on and heat the buildings regardless of the state of the economy, so Fortis should be a good stock to own during a recession.
Fortis trades for less than $57 per share at the time of writing. That’s off the 2023 high around $61.50, but still well above the $49 point the stock fell to last fall.
Management plans to raise the dividend by at least 4% per year through 2027, supported by the current $22.3 billion capital program. Fortis has increased the dividend in each of the past 49 years. Investors who buy the stock at the current level can get a 4% dividend yield.
Enbridge also has natural gas distribution utilities that generate steady cash flow. The largest part of its business, however, is focused on moving oil, natural gas, natural gas liquids and refined fuel from producers to storage sites, refineries, and purchasers of the energy products.
Fluctuations in oil and natural gas prices have limited direct impact on Enbridge. As long as fuel demand is robust and the pipelines are full, Enbridge makes money. The company has shifted capital investments from major new pipeline initiatives to export and renewable energy opportunities. Enbridge now owns an oil export terminal in Texas and is a partner on the Woodfibre liquified natural gas (LNG) project in British Columbia. Enbridge is also expanding its renewable energy group. The company bought a renewable energy developer in the United States last year and is a partner on a large offshore wind project in France.
Enbridge stock might be getting oversold. The share price is down to a new 12-month low. At the current price near $48.50, investors can get a 7.3% dividend yield.
Enbridge increased the dividend in each of the past 28 years. Based on projections for earnings per share growth of about 4% and distributable cash flow growth of roughly 3% over the medium term, investors should see ongoing annual dividend increases of around 3% or 4%.
Is one a better pick?
Fortis and Enbridge pay attractive dividends that should continue to grow. Both stocks should be solid picks for a portfolio focused on passive income. If you only buy one, I would probably make Enbridge the first choice right now. The yield is much higher and the dividend growth in the next few years should be close to that of Fortis.