For investors looking to put some capital to work in their tax-free savings accounts (TFSAs), any time is a good time to start planning on which stocks to consider adding for long-term growth. The benefit of TFSAs is they allow long-term investors to stash a few thousand dollars away every year, with all capital gains on such assets received tax-free at the time the assets are sold. This benefits investors who see tremendous growth over the long term, but can also benefit investors who hold dividend stocks that provide considerable and growing income over time.
The two companies I’m going to discuss here fit both these profiles. Let’s dive into why these magnificent dividend stocks are worth adding to a portfolio right now.
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Fortis
One of Canada’s major utilities providers, Fortis (TSX:FTS), has been among my top picks for some time.
There are many reasons for this. But I’ve mostly focused on Fortis’ standing as a top dividend growth stock. With a current yield of 4.3%, Fortis yields more than many Canadian bonds, making it a preferable choice out of the gate for those seeking a bond proxy. However, the company’s average annual dividend growth rate of around 6% means every decade or so, dividend investors see their annual income double. That kind of compounding can be very attractive for those seeking growing and reliable income streams in retirement.
The company’s strong earnings and cash flow growth profile attributed to its core regulated utilities business means these dividend increases should continue indefinitely. In my view, the company’s total return profile is superior to most plays in the market. And with utilities stocks getting more love in the market from investors who see the enormous power of long-term trends fuelling the AI revolution and electrification trends, this is a stock that’s worth owning here.
Constellation Software
Now, Constellation Software (TSX:CSU) is certainly a more controversial pick to add to a list of “magnificent dividend stocks to own.” That’s because, while Constellation does pay a dividend to investors, it’s microscopic, with a current yield of just 0.13%. In fact, the company has discussed eliminating this dividend altogether, to focus primarily on allocating as much capital to its future acquisitions as possible.
This makes sense, given Constellation’s core business model revolves around acquiring vertical software companies that fit into its portfolio, and growing the efficiency of its portfolio companies over time. This strategy has paid off incredibly well for long-term investors, making Constellation Software one of the best growth stocks on the TSX long term.
The company’s business models are broad, and cover sectors such as communications, biosciences, education, financial services, utilities, and others. The focus on providing a breadth of solutions to a growing clientele has served the company (and investors) very well over time.
So long as Constellation’s growth-via-acquisition model remains intact, this is a stock to own moving forward. And with interest rates coming down (improving the unity dynamics of future deals), there’s a lot to like about this stock’s future trajectory in terms of both revenue and earnings growth.
