With no regular source of income, retirees will usually have less appetite for risk. So, they should look to invest in dividend stocks with solid underlying businesses and consistent dividend growth. These four dividend stocks can deliver risk-free passive income given their solid underlying businesses, impressive track records, and healthy growth prospects.
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Canadian Utilities
Canadian Utilities (TSX: CU) earns substantial earnings from low-risk electricity and natural gas transmission and distribution businesses. Thus, its financials are less susceptible to macroeconomic volatility, allowing it to raise its dividends consistently. The company has raised its dividends for 51 years, representing the longest Canadian public company with dividend growth. Meanwhile, its forward yield stands at an impressive 5.7%.
Further, CU expects its rate base to grow 3 to 4.4% until 2026 and 4 to 5% in the long run. The company, which currently operates renewable energy facilities with a total production capacity of 1.3 gigawatts, has $2.4–$2.6 billion of renewable projects in the developmental stage. So, given its healthy growth prospects and solid underlying businesses, I believe CU’s future dividend payouts to be safe.
Enbridge
Enbridge (TSX: ENB) would be another safe bet, given its stable cash flows and consistent dividend growth. The midstream energy company earns most of its cash flows from cost-of-service contracts and regulated assets and is less susceptible to commodity price fluctuations. So, the company has been paying dividends uninterruptedly for 69 years while raising the same for 29 years. Besides, it currently offers a quarterly dividend of $0.915/share, translating into a forward yield of 7.4%.
Further, Enbridge is looking to expand its utility business by acquiring three natural gas utility assets in the United States. It is also continuing with its $24 billion secured capital program, which could expand its midstream and renewable energy business in the coming years. These growth initiatives could boost Enbridge’s financials, thus allowing it to continue its dividend growth.
Bank of Nova Scotia
Another reliable dividend stock is the Bank of Nova Scotia (TSX: BNS), which has been paying dividends uninterruptedly since 1833. Amid the challenging macro environment, the company has improved its operating metrics. In the first quarter of fiscal 2024, its Common Equity Tier 1 (CET1) ratio has increased from 11.5% to 12.9%, while its liquidity coverage ratio has increased from 122% to 132%.
Besides, BNS’s management is strengthening its balance sheet, scaling priority businesses, and implementing productivity initiatives, which could boost its financials in the coming quarters. With inflation showing signs of easing, the United States Federal Reserve could slash interest rates later this year. Falling interest rates could drive credit demand, benefiting BNS. So, I believe the company is well-positioned to continue paying dividends at a healthier rate. Currently, its forward yield stands at 6.5%.
Pizza Pizza Royalty
Pizza Pizza Royalty (TSX: PZA) would be my final pick, given its asset-light business model. The company owns and operates Pizza Pizza and Pizza 73 brand restaurants through franchisees. It collects royalties from its franchisees based on their sales. So, its financials are less susceptible to rising commodity prices and wage inflation, thus delivering stable and predictable cash flows. Meanwhile, the increase in menu prices to accommodate higher expenses could increase its royalty income.
Further, PZA is expanding its restaurant network and expects to increase its restaurant count by 3 to 4% this year. Besides, its menu innovations, restaurant renovation program, and marketing initiatives could boost its same-store sales in the coming quarters. Given its healthy outlook, I believe PZA’s future payouts are safer. It currently pays a monthly dividend of $0.0775/share, with its forward yield at 7%.
