Want Decades of Passive Income? 2 Stocks to Buy Right Now

These top dividend stocks have great track records of distribution growth.

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The market pullback is giving investors a chance to buy top TSX dividend-growth stocks at discounted prices for a self-directed Tax-Free Savings Account (TFSA) focused on generating steady passive income.

Fortis

Fortis (TSX:FTS) is a Canadian utility with $68 billion in assets located across Canada, the United States, and the Caribbean. The stock trades near $53 per share at the time of writing compared to $63 two years ago.

Rising interest rates in Canada and the United States are to blame for the decline in the share price rather than any specific operational issues. Fortis uses debt to fund part of its growth initiatives. Higher borrowing costs cut into profits and can reduce the cash that is available for distributions. Income investors might also have exited the stock in favour of fixed-income alternatives, such as Guaranteed Investment Certificates (GICs) that now pay attractive rates.

Fortis is working on a $25 billion capital program that is expected to boost the rate base from $37 billion in 2023 to $49.4 billion in 2028. As new assets go into service, the company expects cash flow to rise enough to support planned annual dividend increases of at least 4% over that timeframe. Fortis has increased the dividend annually for the past 50 years. Investors who buy FTS stock at the current level can get a 4.5% dividend yield.

As soon as interest rates start to fall, this stock could catch a nice tailwind.

TC Energy

TC Energy (TSX:TRP) raised its dividend in each of the past 24 years. The stock currently trades near $51.50 per share compared to more than $70 in June 2022. High interest rates and soaring costs on a major project are the main drivers of the pullback.

TC Energy’s 670-kilometre Coastal GasLink pipeline reached mechanical completion late last year at a cost of about $14.5 billion, which was more than double the initial budget. Management has done a good job monetizing non-core assets to shore up the balance sheet over the past 12 months, and the process is ongoing this year. With $5.3 billion in sales in 2023 and another $3 billion on track in 2024, the company should be in good shape to pursue the rest of the capital program. TC Energy is also planning to spin off the oil pipelines business in 2024 to unlock value and raise additional funds.

The company generated solid results in 2023, and cash flow growth driven by the addition of new assets should support ongoing annual dividend increases in the 3% range. Investors who buy TRP stock at the current price can get a dividend yield of 7.45%.

The bottom line on top stocks for passive income

Fortis and TC Energy are good examples of top dividend-growth stocks to consider for a self-directed portfolio focused on passive income.

Ongoing volatility should be expected until the central banks start to cut interest rates, but these stocks already look undervalued and pay you well to wait for the recovery.

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.

The Motley Fool recommends Fortis. The Motley Fool has a disclosure policy. Fool contributor Andrew Walker has no position in any stock mentioned.

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