Fortis (TSX:FTS) and Enbridge (TSX:ENB) have increased their dividends annually for decades. Investors seeking reliable and growing passive income are wondering if FTS stock or ENB stock is currently undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) focused on dividend stocks.
Fortis
Fortis has a current market capitalization of $26 billion. At the time of writing, the stock trades near $53.50, which is down about 10% over the past 12 months.
Fortis owns roughly $66 billion in utility assets located across Canada, the United States and the Caribbean. The businesses include power-generation facilities, electric transmission networks, and natural gas distribution utilities. Nearly all of the revenue comes from rate-regulated assets. This means cash flow tends to be predictable and reliable.
Fortis is working on a $35 billion capital program that will boost the rate base by an average of about 6% per year through 2028. The resulting increase in cash flow should support planned annual dividend increases of 4% to 6%.
Fortis has increased the dividend for 50 consecutive years. The current dividend yield is 4.4%. The stock has delivered big gains for investors over the past 10 years.
Enbridge
Enbridge is a giant in the North American energy infrastructure sector with a market capitalization of $102 billion. The stock trades near $48.50 at the time of writing. It was as low as $43 last October and rallied as high as $59 in 2022.
Enbridge is known for its oil pipelines and its natural gas transmission network, but investments in recent years have focused on expanding the company’s export, renewable energy, and natural gas utility assets. Enbridge continues to grow through a combination of capital projects and acquisitions. The company has a $25 billion secured capital program in place and is wrapping up its US$14 billion purchase of three American natural gas utilities.
Management expects distributable cash flow (DCF) to grow by 3% per year through 2026 and by 5% beyond that timeline. This should support annual dividend increases of 3% to 5%. Enbridge raised the dividend by 3.1% for 2024. This is the 29th consecutive annual dividend hike.
At the time of writing, Enbridge stock provides a 7.5% dividend yield. The stock price is slightly lower than it was 10 years ago.
Is one a better buy?
Enbridge and Fortis pay dividends that will likely grow at a similar pace over the medium term. Investors who are purely focused on generating high-yield passive income should make Enbridge the first pick. Those who are looking for a combination of decent dividend yield and capital gains might want to go with Fortis based on the track record of the share price over the past decade.
