Fortis (TSX:FTS) and Enbridge (TSX:ENB) have long track records of dividend growth. The pullback in the share prices this year has investors wondering if FTS stock or ENB stock is now oversold and good to buy for a self-directed Tax-Free Savings Account (TFSA) focused on passive income.
Fortis
Fortis operates $66 billion in utility assets across five provinces in Canada, 10 American states, and three Caribbean countries. The businesses include power-generation facilities, natural gas utilities, and electric transmission networks.
Fortis stock trades near $55 at the time of writing compared to a high of around $65 last year.
The pullback appears overdone, considering the reliability of the revenue stream from these rate-regulated assets and the growth outlook from the $25 billion capital program.
Fortis expects its organic developments over the next five years to boost the rate base from $36.8 billion in mid-year 2023 to $49.4 billion in 2028. That works out to a five-year compound annual growth rate of about 6.3%. As the new assets go into service, Fortis should see cash flow grow to support the planned annual dividend increases of 4% to 6% through 2028. This is good guidance in an uncertain economic environment.
Fortis has increased the dividend for 50 consecutive years. At the current share price, investors can get a 4.3% dividend yield.
Enbridge
Enbridge continues to make acquisitions to drive growth and diversify the revenue stream. The company has invested in oil and natural gas export facilities in the past couple of years. Enbridge also purchased a wind and solar developer in 2022 and just recently announced a US$14 billion deal to buy three natural gas utilities in the United States.
The new assets will help drive revenue and cash flow expansion in the coming years while providing a more balanced revenue portfolio for the pipeline giant. Enbrige’s core oil and natural gas transmission networks remain important for the business. The company moves 30% of the oil produced in Canada and the United States, and its natural gas system transports 20% of the natural gas used by American homes and businesses.
Enbridge is on track to deliver solid financial results for 2023, despite the headwinds posed by rising interest rates. The board just declared a 3.1% dividend increase for 2024. This is the 29th consecutive annual boost to the distribution.
Enbridge trades for close to $47.50 at the time of writing. The stock was as high as $59 at one point last year, so there is decent upside potential on a rebound. Investors who buy the dip can currently get a 7.7% dividend yield.
Is one a better pick?
Investors seeking the highest yield for a portfolio focused primarily on passive income should make Enbridge the first choice. That being said, Fortis deserves to be on your radar as well. The initial yield is lower, but the dividend-growth guidance is solid for the next five years, and FTS stock still looks oversold.
