TFSA Income Stream: 2 Top TSX Dividend Stocks to Own for Decades

These TSX stocks have great track records of dividend growth.

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The pullback in the share prices of some of Canada’s top dividend stocks is giving investors a chance to buy at undervalued prices while securing good dividend yields for a self-directed Tax-Free Savings Account (TFSA) focused on passive income.

Fortis

Fortis (TSX:FTS) offers a 4.4% dividend yield at the time of writing. This is lower than the yield that is available from other stocks, but the dividend growth will steadily boost the return on the initial investment in the coming years.

Fortis gets most of its revenue from rate-regulated businesses. These include power-generation facilities, electric transmission networks, and natural gas distribution utilities. Companies and households need electricity and natural gas regardless of the state of the economy, so Fortis should be a solid stock to own through an economic downturn.

The steady cash flow gives management the confidence to grow the business through acquisitions and development projects. Fortis is working on a $25 billion capital program that will boost the rate base from $37 billion in 2023 to more than $49 billion in 2028. The anticipated increase in cash flow should support planned annual dividend increases of 4-6% over the next five years. Fortis raised the dividend in each of the past 50 years, so investors should be comfortable with the guidance.

Fortis trades near $53.50 at the time of writing compared to $65 at the high point in 2022. The stock is off the 12-month low near $50, and more gains should be on the way once interest rates start to decline in the United States.

TC Energy

TC Energy (TSX:TRP) finally completed its 670 km Coastal GasLink pipeline late last year. The project’s budget more than doubled to roughly $14.5 billion after costs soared due to pandemic delays, bad weather, labour issues and rising material prices. These challenges, along with the surge in interest rates through the back half of 2022 and much of 2023, combined to send the stock into decline that saw TRP fall from $74 two years ago to as low as $44 in 2023.

Investors who moved in at the 12-month low are already sitting on decent gains. TC Energy trades near $52 at the time of writing and more upside should be on the way. The company sold interests in some U.S. assets last year to raise $5.3 billion. Additional asset monetization in 2024 is expected to bring in another $3 billion. These deals should put the balance sheet in position to support the ongoing growth program. Coastal GasLink also recently concluded a $7.15 billion bond sale to refinance loans taken to complete the pipeline. The project is expected to start delivering natural gas to a new liquified natural gas (LNG) facility in 2025.

Falling interest rates will reduce borrowing costs for TC Energy and should free up cash to support dividend growth along with the boost to cash flow that will come as new assets go into service. TC Energy raised the dividend in each of the past 24 years. Ongoing dividend increases in the 3% range are reasonable to expect, given the projected capital program that will see the company invest $6 billion to $7 billion per year over the medium term.

Investors who buy TC Energy at the current level can get a 7.3% dividend yield.

The bottom line on top stocks for passive income

Fortis and TC Energy pay attractive dividends that should continue to grow. If you have some cash to put to work in a TFSA targeting passive income, these stocks deserve to be on your radar.

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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