Investing in Canadian dividend stocks with strong fundamentals and a growing earnings base can help generate worry-free passive income for decades. One can also leverage the TFSA (Tax-Free Savings Account) to earn tax-free dividends.
With this background, here are two dividend stocks to buy and hold forever.
TFSA Stock #1
TFSA investors seeking steady dividend income can turn to Enbridge (TSX:ENB), a top energy infrastructure company popular for its stellar dividend payments. Indeed, Enbridge has a remarkable dividend payment history of over 69 years. Moreover, Enbridge has uninterruptedly paid dividends for an impressive 29 years.
The energy company’s stellar dividend payment and growth history show management’s commitment to enhancing its shareholders’ value. Moreover, it reflects the resiliency of its business model, which generates growing earnings and distributable cash flow (DCF) per share.
As a key player in North America’s energy value chain, Enbridge’s role in oil and gas transportation ensures high asset utilization regardless of market conditions. Moreover, its highly diversified revenue streams, long-term contracts, and power purchase agreements position it well to consistently generate solid earnings and distributable cash flow (DCF) per share, which drives its dividend payouts.
Enbridge’s leadership sees dividend growth as an integral part of its value proposition for its shareholders. This steadfast commitment suggests the potential for continued dividend increases in the years ahead, supported by a sustainable target payout ratio of 60 to 70% of DCF.
In the future, Enbridge expects to grow its earnings per share (EPS) and DCF per share at a compound annual growth rate (CAGR) of 4 to 6% and 3%, respectively, until 2026. After 2026, Enbridge projects its EPS and DCF per share to grow at a CAGR of approximately 5%. This will facilitate the company increasing its dividend at a mid-single-digit rate in the long term.
While Enbridge is well positioned to enhance its shareholders’ returns through higher dividends, it offers a compelling yield of 7.3% (based on its closing price of $50.33 on May 15).
TFSA Stock#2
Investors seeking reliable dividend income could consider investing in shares of leading utility companies. Notably, utility companies benefit from their regulated assets, which generate predictable cash flows and support dividend payouts. Within the utility sector, TFSA investors could consider adding shares of Fortis (TSX:FTS).
This regulated electric utility company owns diversified utility businesses and generates predictable and growing cash flow in all market conditions. This enables Fortis to uninterruptedly pay and increase its dividend payments.
It’s worth highlighting that Fortis has increased its dividend for 50 consecutive years. Moreover, its growing regulated rate base suggests that the company will likely increase its dividend in the upcoming years.
Fortis’ multi-billion capital program will drive its rate base in the future. The company expects its rate base to increase at a CAGR of 6.3% through 2028. Thanks to its growing rate base, Fortis will likely increase its dividend at a CAGR of 4 to 6% during the same period. FTS stocks’ dividend payouts are well-protected. Moreover, it offers a yield of 4.2%, near the current levels.
