Dividend stocks remain a solid investment to earn a steady stream of passive income. However, as dividend payouts are not guaranteed, you need to further analyze the fundamentals of companies before investing.
The TSX index has several blue-chip stocks that have been paying dividends for decades. Moreover, the best dividend stocks also increase their dividends each year, increasing your effective yield significantly over time.
It’s essential to identify Canadian dividend stocks that are equipped with a resilient business, expanding cash flows, and a sustainable payout ratio, allowing you to generate outsized returns over time.
Here, I’ll discuss three such Canadian stocks that can help you earn passive income across market cycles. Each of these companies has an enviable dividend payment and growth history.
Enbridge stock
One of the most popular dividend stocks on the TSX, Enbridge (TSX:ENB) provides shareholders with a yield of 7.6%. A midstream giant, Enbridge, is armed with a portfolio of energy pipelines, transportation, and storage assets.
Its toll-based business model enables Enbridge to charge fees for the use of its diversified base of assets, making it immune to changes in commodity prices. These fee-based contracts are tied to inflation, making the company’s cash flows predictable.
Enbridge has increased its dividends by 10% annually in the last 28 years. Despite a challenging macro environment, Enbridge expects to increase cash flows by 4% in 2023, showcasing the resiliency of its business.
Further, Enbridge is investing in cleaner energy assets such as natural gas pipelines, natural gas utility operations, and renewable energy. Currently, ENB stock trades at a discount of 25% to consensus price target estimates.
Toronto-Dominion Bank
Toronto-Dominion Bank (TSX:TD) should be part of your dividend portfolio, given the banking heavyweight has paid shareholders a dividend for 166 years. Since 1995, these dividends have grown by 11% annually, which is the highest among the big TSX banks. Priced at less than 10 times forward earnings, TD stock offers a dividend yield of 4.8% right now.
Toronto-Dominion Bank has diversified revenue streams, a robust balance sheet, strong credit quality, and a solid history of growing its loan book. Its dividend-payout ratio is less than 50%, providing the company with enough room to increase these payouts, reinvest in growth projects, and enter new markets.
TD Bank stock trades at a discount of 13% to consensus price target estimates.
Fortis stock
The final TSX dividend stock on my list is Fortis (TSX:FTS), a low-risk business that enjoys stable cash flows. Fortis operates 10 regulated utility businesses and is positioned to generate earnings irrespective of market conditions.
Fortis has increased dividends for 49 consecutive years, and these payouts are forecast to grow between 4% and 6% in the medium term. With a forward yield of 4.2%, Fortis stock should be on the radar of income-seeking investors.
Fortis projects its rate base to grow at a compound annual growth rate of 6.2% through 2027, driving future cash flows and dividends higher.
Down 18% from all-time highs, FTS stock also trades at a discount of 12% compared to consensus price targets.
