TFSA Investors: 3 Dividend Stocks to Buy and Hold Forever

TFSA investors can earn reliable dividend income for decades with these Canadian stocks.

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Investing in top dividend stocks can help generate steady passive income for years. Moreover, one can leverage the TFSA (Tax-Free Savings Account) to boost the overall returns in the long term, as dividend income and capital gains are not taxed in a TFSA.

Investors should carefully choose fundamentally strong stocks with a resilient business model and a growing earnings base to earn worry-free dividends. 

Against this background, TFSA investors could consider Canadian stocks like Enbridge (TSX:ENB), Fortis (TSX:FTS), and Bank of Montreal (TSX:BMO). These stocks have resilient dividend payouts and are committed to returning higher cash to their shareholders, making them a solid investment for the long haul.

Enbridge

TFSA investors could consider adding Enbridge stock for its stellar dividend payment and growth history. The company, which transports oil and gas, has uninterruptedly paid dividends for 69 years and increased it for 29 consecutive years. Meanwhile, ENB stock offers a compelling yield of 7.5%, based on the closing price of $48.93 on May 29.

Enbridge’s commitment to consistently enhancing its shareholders’ value stems from its resilient business model, which generates higher earnings and strong distributable cash flows (DCF). Moreover, its highly diversified revenue streams, long-term contracts, power-purchase agreements, and high asset utilization rate enable it to consistently generate solid earnings and DCF per share, driving its dividend payouts.

Enbridge’s management sees dividend growth as an integral part of its value proposition for its shareholders. In the long term, the company’s earnings per share (EPS) and DCF per share are forecasted to increase at a CAGR (compound annual growth rate) of approximately 5%. This will enable it to increase its dividends at a similar pace. With a targeted payout ratio of 60-70% of DCF, Enbridge’s dividend-growth prospects appear sustainable over the long term.

Bank of Montreal

TFSA investors could consider shares of leading Canadian banks for their ability to pay and maintain dividends for over a century. Within the banking sector, Bank of Montreal stock stands out for its longest history of dividend payments among all Canadian stocks, making it a lucrative investment for earning regular income.

This leading financial service giant has paid dividends for over 195 years. Moreover, its dividend grew at a CAGR of 5% in the last 15 years. The bank’s stellar dividend payouts are backed by its ability to grow earnings under all market conditions. Bank of Montreal’s diversified revenue sources, focus on credit quality, growing loan portfolio, high-quality deposits, and steady credit performance support its revenue and enable it to deliver higher earnings. Meanwhile, improving operating efficiency will drive its bottom line and dividend distributions.

The bank expects its earnings to increase at a 7-10% CAGR in the medium term. Moreover, its low payout ratio indicates that its distributions are safe and sustainable in the long term. 

Fortis

Shares of leading utility companies can be a valuable addition to your TFSA portfolio. Utility companies are famous for their reliable dividend payouts. Within the utility sector, Fortis has uninterruptedly paid and increased its dividend payments for 50 consecutive years. This makes it a compelling investment for earning worry-free passive income. Fortis operates regulated electric utility businesses.

Its payouts are covered through its growing and predictable cash flows. Moreover, its growing regulated rate base suggests that the company will likely increase its dividend in the upcoming years. Most of its earnings are generated through low-risk utility assets, so its payouts are well-covered and can be relied upon. Further, its 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 4-6% CAGR during the same period. FTS stock’s dividend payout is well-protected. Moreover, it offers a healthy yield of 4.4%, near the current levels.

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 Sneha Nahata has no position in any of the stocks mentioned. The Motley Fool recommends Enbridge and Fortis. The Motley Fool has a disclosure policy.

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