Retirees and other investors looking for ways to boost the returns they get on their savings have a chance to buy top TSX dividend stocks at discounted prices for their self-directed Tax-Free Savings Accounts (TFSAs) targeting passive income.
Buying stocks on dips takes courage. Cheap stocks often get cheaper before they recover. Adding high-quality dividend stocks to a portfolio when they are out of favour, however, is a good way to get better yields and can set the investor up for attractive total returns.
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Enbridge
Enbridge (TSX:ENB) has raised its dividend in each of the past 28 years. Recent annual hikes have been in the 3% range. This is less than investors received in the days when Enbridge was building massive oil pipelines to drive growth but is still respectable in the current environment of high interest rates.
Enbridge’s growth strategy is now focused on natural gas, renewable energy, and energy exports. The company recently announced a US$14 billion deal to buy three natural gas utilities in the United States. The move adds to the existing natural gas utilities in Canada and will make Enbridge the largest natural gas utility operator in North America. These assets, combined with the existing natural gas transmission network, put Enbridge in a good position to benefit from the anticipated transition to hydrogen in the coming years.
Enbridge’s oil pipelines remain important assets. It is difficult to get new large pipeline projects approved and completed. This means the existing infrastructure should be more valuable. Oil demand is expected to remain strong for decades, even as the world transitions to renewable energy. Enbridge acquired an oil export terminal in Texas in 2021 to capitalize on rising demand from international buyers.
Enbridge has itself covered on the renewable energy front as well. The company already owned solar and wind assets before it bought the third-largest U.S. renewable energy developer last year.
Enbridge expects its current $17 billion capital program and revenue from the new acquisitions to drive future cash flow growth. That should support ongoing dividend increases. Enbridge stock trades near $45.50 at the time of writing compared to $59 at the high point last year. Investors who buy the pullback can get a 7.8% yield from ENB stock.
Fortis
Fortis (TSX:FTS) has given shareholders a dividend increase for 49 consecutive years, and more good news is on the way.
The company is working on a $22.3 billion capital program that is expected to boost the rate base from $34.1 billion to $46.1 billion over five years. As the new assets go into service, cash flow growth should support planned annual dividend hikes of 4-6%. That’s the kind of consistency investors want to see for a portfolio focused on passive income and total returns.
Fortis owns assets worth $64 billion across Canada, the United States, and the Caribbean. The utilities generate revenue from rate-regulated businesses, including power generation, electricity transmission, and natural gas distribution. These provide essential services needed by commercial and residential customers, regardless of the state of the economy.
Fortis stock trades below $53 at the time of writing compared to $61.50 in May. The drop is likely overdone, and investors can now get a 4.5% dividend yield.
The bottom line on top stocks for dividend growth
Enbridge and Fortis pay attractive dividends that should continue to grow. If you have some cash to put to work in a TFSA targeting passive income, these stocks look cheap today and deserve to be on your radar.
