Canadian Dividend Machines: Stocks That Generate Passive Income

Given their solid underlying businesses and consistent dividend growth, these three stocks could boost your passive income.

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Historically, dividend stocks have outperformed the broader equity markets while providing stability. However, with the high interest rate environment severely impacting the financial position of several companies, investors should be careful when choosing stocks. Meanwhile, given their solid underlying businesses and consistent dividend payout, I am bullish on the following three Canadian stocks.

Enbridge

Enbridge (TSX:ENB) operates a highly contracted and low-risk midstream energy and utility business, thus shielding its financials from commodity price fluctuations. Besides, around 80% of its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) is inflation-indexed, thus lowering the impact of rising prices on its financials. So, the company’s financials are stable and predictable, thus allowing it to pay dividends consistently for the last 69 years. It has raised its dividend at an annualized rate of 10% for the previous 29 years and offers a healthy dividend yield of 7.66%.

Further, Enbridge has acquired two natural gas utility assets in the United States and is working on closing the third deal. These acquisitions could lower its business risks due to increased cash flows from low-risk utility businesses. Further, the company has planned to invest around $6-$7 billion annually, expanding its midstream, utility, and renewable asset base. Its financial position also looks healthy, with its debt-to-EBITDA at 4.7, within its guidance of 4.5 to five. Considering all these factors, Enbridge is well-equipped to continue its dividend growth, thus making it an excellent buy for income-seeking investors.

Fortis

Fortis (TSX:FTS) operates 10 regulated utility assets, meeting the electric and natural gas needs of 3.5 million customers across the United States, Canada, and the Caribbean. Given its regulated asset base, defensive business model, and ability to generate stable cash flows, the company has been raising dividends for the last 50 years. It currently pays a quarterly dividend of $0.59/share, translating into an annualized rate of $2.36/share and a forward yield of 4.42%.

Meanwhile, Fortis has planned to make a capital investment of approximately $25 billion from 2024 to 2028, growing its rate base at an annualized rate of 6.3%. Along with these investments, price hikes and improvements in operational efficiencies could boost the company’s financials and cash flows. So, the company’s management is confident of raising its dividends by 4-6% annually in the coming years. Its valuation also looks attractive, as concerns over the high-interest rate environment have weighed on its stock price. It currently trades at 2.2 times analysts’ projected sales for the next four quarters.

Canadian Natural Resources

Canadian Natural Resources (TSX:CNR) is an oil and natural gas production company with a diversified, balanced asset base. Supported by its low-risk, high-value reserves and effective and efficient operations, the company has delivered consistent performances, thus allowing it to raise dividends uninterruptedly for the last 24 years at a CAGR of 21%. It currently pays a quarterly dividend of $0.525/share, with its forward yield at 4.34%.

Meanwhile, analysts are predicting oil prices to remain higher amid continued voluntary production cuts and rising demand in the summer. CNR has planned to invest around $5.4 billion this year, strengthening its asset base. The management expects its total production to increase by 1.7% this year compared to the previous year. So, elevated commodity prices and increased production could boost its financials and cash flows. With the company managing to lower its net debt to $10 billion, it expects to return 100% of its free cash flows to shareholders. So, CNR is well-positioned to maintain its dividend growth, thus making it an attractive buy.

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 Rajiv Nanjapla has no position in any of the stocks mentioned. The Motley Fool recommends Canadian National Railway, Enbridge, and Fortis. The Motley Fool has a disclosure policy.

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