TFSA Passive Income: 4 Stocks to Buy and Never Sell

Dividend stocks like Canadian National Railway (TSX:CNR) can pay passive income for life.

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Are you looking for passive-income stocks that you can simply buy and collect dividends from forever? In the strict sense, it’s not really possible. Any company could theoretically suffer major financial damage that causes it to have to cut its dividends to avoid going out of business. However, there are some companies that are financially and operationally strong enough that you can hold them for very long periods of time.

For example, Warren Buffett bought Coca-Cola stock in the late 80s and still holds it today, collecting a 60% yield on his original purchase price.

In this article, I will explore four TSX dividend stocks that may be worth holding for prolonged periods of time.

CN Railway

Canadian National Railway (TSX:CNR) is a Canadian dividend stock with a 2% yield. It isn’t the highest yielder on this list, but it has had high historical dividend growth, with the dividend up about 12% per year over the last five years. If this dividend growth continues, then today’s investors will enjoy a higher yield on cost in the future.

How has CN Railway delivered so much dividend growth? Largely by growing its earnings enough to justify it. Over the last 10 years, CN Railway has grown its revenue by 4.2% per year and its earnings by 10.5% per year. That’s enough fundamental growth to support the dividend hikes that have been observed. Lastly, CN Railway has a strong competitive position (only one competitor in Canada) in an economically indispensable industry. Overall, it’s a winning setup.

Canadian Pacific

Canadian Pacific Kansas City Railroad (TSX:CP) is another railroad company like Canadian National. It has only a 0.72% dividend yield, but like CN Railway, it has a lot of dividend-growth potential. While CP’s five-year dividend-growth rate — 7.7% per year — has been slower than CNR’s, this company has more growth catalysts.

It recently finished buying the U.S. railroad Kansas City, which is why “Kansas City Railroad” is now in its name. As a result, the company is the only railroad linking Canada, the U.S. and Mexico. Many opportunities could come from this. Apart from that factor, CP is very similar to CNR.

Fortis

Fortis (TSX:FTS) is a Canadian Dividend King with 50 years of dividend increases under its belt. The company is a regulated utility, which means that it tends to enjoy stable revenue and a strong competitive position in its service areas. People would rather sell their cars than go cold in the winter.

All utilities enjoy that advantage, but Fortis has handily outperformed the TSX utility sector by a wide margin over the decades. One reason for this is that the company has never paid out more dividends than it earned in profit — such behaviour has been a problem for other utilities. Also, it has invested in growth over the years, acquiring subsidiaries all over North and South America.

Royal Bank

Royal Bank of Canada (TSX:RY) is Canada’s biggest bank. Its shares yield about 4.4% at today’s prices. They offer a lot of income potential. Not only is the yield today quite tantalizing, but the company has, like the others on this list, grown its dividend over the years.

Over the last five years, Royal Bank has increased its dividend at a rate of 6.85% per year. It also has a very low payout ratio. I don’t like everything about this stock. I thought the company paid too much for HSBC Canada last year. However, it is diligent enough about its dividend policy that investors should get the dividends they expect.

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 Andrew Button has no position in any of the stocks mentioned. The Motley Fool recommends Canadian National Railway, Canadian Pacific Kansas City, and Fortis. The Motley Fool has a disclosure policy.

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