Canadian pensioners are searching for ways to boost returns on their savings to help offset the impact of inflation. One popular strategy for generating reliable and tax-free passive income involves owning top Canadian dividend-growth stocks inside a Tax-Free Savings Account (TFSA).
Fortis
Fortis (TSX:FTS) has increased its dividend in each of the past 49 years. In addition, management expects to raise the distribution by and average of at least 4% annually through 2027. That’s the kind of dividend-growth track record and guidance retirees like to see when picking a top stock to own for passive income.
Long-term total returns have also been attractive for patient Fortis shareholders.
Fortis gets nearly all of its revenue from rate-regulated businesses. These include power-generation facilities, electricity transmission networks, and natural gas-distribution utilities. Cash flow tends to be steady from these assets, regardless of the state of the economy. Even in a recession, households and companies need fuel and electricity.
Fortis hasn’t made a big acquisition for several years, but the current $22.3 billion capital program will significantly increase the rate base to drive revenue expansion needed to support the planned dividend increases.
At the time of writing, Fortis trades near $57.50 per share compared to the 2022 high above $64. Investors who buy the dip can get dividend yield of close to 4% and simply wait for the dividend hikes to boost the return on the investment.
BCE
BCE (TSX:BCE) raised its dividend by at least 5% annually over the past 15 years. The stock has been a popular pick among retirees for decades due to the generous and reliable payouts. BCE is a leader in its industry with a market capitalization of about $52 billion.
Size matters in the Canadian communications sector. The country is large with a relatively small population. The greater Tokyo area is actually home to about the same number of people.
Building wireline and wireless networks to bring world-class mobile and internet services to homes and businesses across the country requires major investments. BCE spent about $5 billion on capital projects in 2022 and continues to upgrade its fibre optic and 5G infrastructure to meet the broadband needs of its residential and commercial clients.
BCE has a wide competitive moat and can increase fees when it needs extra cash.
The jump in interest rates is making debt more expensive to fund projects, and BCE will likely see earnings slip in 2022 compared to last year. That being said, overall revenue and free cash is expected to rise, so investors should see another decent dividend hike for 2024.
BCE stock looks oversold right now below $58 per share. It traded as high as $74 at the peak last year. Investors who buy BCE at the current level can pick up a solid 6.7% dividend yield.
The bottom line on top stocks for passive income
Fortis and BCE are good examples of top TSX dividend stocks with great track records of distribution growth. If you have some cash to put to work in a TFSA focused on passive income, these stocks deserve to be on your radar.
