For investors looking to create a passive income portfolio they’d be proud of, finding the top dividend stocks to buy is an important task. The thing is, for investors looking on even a relatively small global exchange like the TSX, there are hundreds of options to choose from. Picking the best companies with the most stable cash flows (and dividends that are likely to increase over time) is important.
In my view, the following two companies could be the best dividend stocks to choose from in Canada. Here’s why I think these companies are worth considering at current levels.
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Fortis
Fortis (TSX:FTS) owns and operates 10 utility transmission and distribution assets in Canada and the United States. The company serves more than 3.4 million customers in the region and has smaller shares in electricity generation and several Caribbean utilities.
Notably, the company offers essential services to its customers, for which it gets compensated with recurring revenue streams. Fortis’ customer base simply can’t not pay their bills. Having your A/C unit shut off during a heat wave or being unable to turn the lights (and WiFi) on can be a kiss of death for so many households. That’s largely why utility companies are seen among the most steady revenue streams out there – it’s a bill that most often gets paid first.
The company’s stable cash flows have translated into strong dividend increases over time. Fortis’ 50-year track record of hiking dividends has led to a quarterly distribution of $0.59, good for a yield of 4.4% at the company’s stock price at the time of writing. That’s a reasonable yield relative to what investors would get in the bond market. And those choosing to invest in Fortis stock also gain the benefit of the company’s capital appreciation profile, which has been solid long term.
Fortis’ recent results point to the kind of fundamental stability so many dividend investors are after (or ought to be). The company’s net income growth of 9.2% year-over-year is solid, and indicates the kind of pricing power and stability Fortis provides. Those thinking long-term can’t go wrong owning this name, in my view.
Brookfield Infrastructure Partners
Brookfield Infrastructure Partners (TSX:BIP.UN) operates and owns long-life and quality assets that generate stable cash flow. The company focuses on acquiring infrastructure assets with low maintenance capital costs and high barriers to entry. It has four different segments: transport, utilities, data and midstream.
The company generates 90% of its cash flow from long-term contracts or regulated frameworks with an average remaining term of 10 years. In addition, 85% of its earnings have been indexed or protected from inflation. This is a feature of the company’s business model, which helps Brookfield Infrastructure Partners insulate its earnings from future uncertainty.
In the first quarter of 2022, Brookfield Infrastructure Partners reported net income of US$170 million in comparison to last year’s US$23 million. In addition, the company reported funds from operations of US$615 million, an 11% increase year-over-year. The increase reflects its 7% organic growth and contributions of approximately US$2 billion of new investments.
In addition, the market conditions have continued to improve for Brookfield Infrastructure Partners L.P. in 2024, as it has increased its activity levels for M&A. The company has offered a 14.5% annualized total return since its inception in 2008. During that period, the funds from operations grew at a 15% compound annual rate per share. Thus, these growth factors of Brookfield Infrastructure Partners L.P. make it a must-add stock to your portfolio.
For those thinking long term, these two dividend stocks certainly make sense as core portfolio holdings. At current levels, I think they’re buys.
