The market correction in certain sectors of the TSX is giving retirees and other income investors a chance to buy great Canadian dividend stocks at discounted prices. With economic turbulence likely on the way, it makes sense to look for stocks with good track records of dividend growth.
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Fortis
Fortis (TSX:FTS) is a utility company with $65 billion in assets located in Canada, the United States, and the Caribbean. Regulated electric utilities make up 82% of the portfolio. Natural gas distribution utilities account for 17% of the assets. The final 1% is non-regulated energy infrastructure, as of March 31, 2023.
Fortis gets 99% of its revenue from regulated businesses. This means cash flow tends to be reliable and predictable. The company grows through acquisitions and internal development projects. Fortis is currently working on a five-year $22.3 billion capital program that will boost the rate base enough to support targeted annual dividend growth of at least 4% through 2027.
FTS stock trades near $56 at the time of writing compared to $65 in May last year. Investors who buy now can get a 4% yield. Fortis has increased its dividend annually for nearly five decades.
TC Energy
TC Energy (TSX:TRP) operates 93,000 km of natural gas pipelines and more than 650 billion cubic feet of natural gas storage in Canada, the United States, and Mexico. The natural gas transmission network moves a quarter of all the natural gas used in North America.
Natural gas demand is expected to increase in the coming years as utilities around the globe switch to the fuel from coal and oil for power generation. Natural gas emits significantly less carbon dioxide than coal and oil when burned.
TC Energy has a secured capital program of $34 billion through 2028. Management expects cash flow to support annual dividend increases of at least 3%. TC Energy raised the payout annually for the past 23 years.
The stock trades near $54.50 at the time of writing compared to a high around $74 last year. At the current share price, the stock provides a 6.8% dividend yield.
CIBC
CIBC (TSX:CM) raised the dividend when the bank reported its fiscal second-quarter (Q2) 2023 results. This should be a signal to investors that management is comfortable with loan risks in the commercial and residential lending portfolios.
CIBC has a large exposure to the Canadian residential housing market relative to its size, so the stock would likely see more pressure in the event the housing market plunges. This is unlikely to occur, however, even if the steep jump in interest rates forces property investors and over-leveraged households to sell. High immigration levels and pent-up demand should limit the downside.
The average loan-to-value ratio on CIBC’s uninsured mortgages was 53% in fiscal Q2 2023. This means house prices would have to fall nearly 50% on average before CIBC would potentially take a material hit on mortgage defaults.
CIBC remains very profitable and has adequate capital reserves to ride out a downturn. Investors can now get a 6% dividend yield on CM stock.
The bottom line on top dividend stocks for passive income
Fortis, TC Energy, and CIBC pay attractive dividends that should continue to grow. If you have some cash to put to work, these stocks deserve to be on your radar.
