Putting money into leading dividend-paying stocks is a smart move for creating a steady stream of passive income that lasts. Additionally, using the TFSA (Tax-Free Savings Account) can help generate tax-free passive income. This is because dividends, interests, and capital gains are not taxed within a TFSA, making it a solid channel for investing in the equity market.
Against this background, TFSA investors could consider top dividend-paying Canadian stocks like Enbridge (TSX: ENB), Canadian Utilities (TSX: CU), and Bank of Montreal (TSX: BMO).
These fundamentally strong stocks have a resilient business model and growing earnings base. Further, they sport a solid dividend payment history, making them attractive investments for earning worry-free dividends in the long term.
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Enbridge
Enbridge is one of the top dividend stocks TFSA investors could consider buying now. The company transports oil and gas and owns high-quality energy infrastructure assets. What stands out is Enbridge’s commitment to enhancing its shareholders’ value through dividend payments.
Enbridge has uninterruptedly paid dividends for 69 years and increased them for 29 consecutive years. Meanwhile, ENB stock offers a compelling yield of 7.4%, based on the closing price of $49.24 on July 12.
Enbridge’s track record of stellar dividend payments and growth history reflects its commitment to return higher cash to its shareholders.
Enbridge’s resilient business model enables it to generate solid earnings and distributable cash flows (DCF), supporting higher dividend payouts. The company benefits from its highly diversified revenue streams, long-term contracts, power-purchase agreements, and high asset utilization rates.
Enbridge is well-positioned to grow its earnings per share (EPS) and DCF per share at a CAGR (compound annual growth rate) of about 5% in the long term. This suggests that its dividend could grow at a low-to-mid single-digit rate in the coming years. Further, Enbridge has a sustainable target payout ratio of 60 to 70% of DCF.
Canadian Utilities
Canadian utility companies are known for their resilient dividend payments owing to their predictable cash flows and relatively defensive business model. Canadian Utilities is one such stock from the utilities sector that investors could consider for safe and durable dividend income. The company boasts a dividend growth history of 52 consecutive years, the most by any publicly traded Canadian company. Its high yield of 5.9% makes it all the more attractive.
Canadian Utilities’ defensive business model, a growing rate base, and predictable cash flows support its payouts. Moreover, in the future, the company will likely enhance its shareholders’ value through higher dividend payments as its payouts are well-protected and backed by its regulated utility assets.
This utility company is expanding its rate base by investing in regulated utility assets. Moreover, Canadian Utilities’ focus on commercially secured energy infrastructure capital projects augurs well for growth and will likely support its dividend payments.
Bank of Montreal
The leading bank companies in Canada have been paying and maintaining dividends for over a century. Thus, TFSA investors could consider investing in shares of leading Canadian banks for steady passive income. Within the banking sector, Bank of Montreal, with its long history of dividend payments, is an attractive investment.
Bank of Montreal has paid dividends for over 195 years. Moreover, its dividend grew at a CAGR of 5% in the last 15 years. BMO’s payouts reflect the bank’s ability to grow earnings under all market conditions.
Bank of Montreal’s diversified revenue sources, growing loan portfolio, high-quality deposits, steady credit performance, and improving operating efficiency augur well for future earnings growth. The bank expects its earnings to increase at a CAGR of 7 to 10% in the medium term, which will drive its payouts. Moreover, its low payout ratio indicates that its distributions are safe and sustainable in the long term. BMO offers a healthy yield of 5.3%.
