Retirees: 2 Top TSX Dividend Stocks to Buy Now for Passive Income in 2024

High-yield dividend stocks such as Emera and Capital Power also trade at a discount to consensus price target estimates.

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Retirees looking to generate a passive income stream can consider investing in utility stocks such as Emera (TSX:EMA) and Capital Power (TSX:CPX). Generally, utility stocks are part of mature industries and generate stable earnings across market cycles, as a majority of their cash flows are regulated. As cash flows are predictable, utility stocks pay shareholders a tasty dividend yield and increase the payouts at a steady pace over time.

Is Emera stock a good buy right now?

Valued at $13.8 billion by market cap, Emera pays shareholders an annual dividend of $2.87 per share, translating to a forward yield of 5.94%. With $39 billion in assets, Emera has investments in Canada, the U.S., and the Caribbean. It primarily invests in verticals such as regulated electricity generation and electricity and gas transmission and distribution.

Emera ended 2023 with an average rate base of $27.2 billion and a three-year capital program of $8.9 billion, which should drive future cash flow and earnings higher.

Despite a challenging macro environment, Emera reported earnings of $3.57 per share in 2023, compared to $3.56 per share in 2022. Its operating cash flow more than doubled to $2.3 billion allowing it to invest $2.9 billion to expand the rate base.

Emera reported $1.3 billion in adjusted net income last year, which suggests it is trading at 10.6 times trailing earnings. It owns and operates six regulated utilities and derives 96% of net income from these assets.

Emera pays shareholders an annual dividend of $2.87 per share, and these payouts have doubled in the last 10 years. Moreover, Emera expects to grow its dividends between 4% and 5% annually through 2026.

Analysts tracking the TSX stock remain bullish and expect shares to surge over 10% in the next 12 months. After adjusting for dividends total returns will be closer to 16%.

Is Capital Power stock undervalued?

Valued at $4.6 billion by market cap, Capital Power is a growth-oriented power producer with 9,300 megawatts (MW) of power generation at 32 facilities across North America. In Q4 of 2023, Capital Power generated adjusted funds from operations (AFFO) of $162 million, adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $313 million and a net income of $95 million. In 2023, its AFFO stood at $819 million, with an EBITDA of $1.45 billion and a net income of $737 million.

Capital Power pays shareholders an annual dividend of $2.46 per share, indicating a forward yield of 6.4%. In the last decade, Capital Power has increased EBITDA by 11% annually while dividends have grown by 8% annually, enhancing the yield at cost by a significant margin.

In 2024, Capital Power aims to allocate between $180 million and $200 million towards capital expenditures. Its AFFO is forecast to be between $770 million and $870 million. At the midpoint forecast, Capital Power’s payout ratio is well below 50%, providing it with the flexibility to strengthen its balance sheet and target accretive acquisitions.

Priced at just 12 times forward earnings, CPX stock trades at a discount of 13% to consensus price target estimates. After accounting for its dividends, total returns may be closer to 20%.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Aditya Raghunath has positions in Capital Power. The Motley Fool recommends Emera. The Motley Fool has a disclosure policy.

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