Savvy Tax-Free Savings Account (TFSA) investors who buy top Canadian dividend stocks on pullbacks can generate attractive yields for passive income and potentially lucrative long-term total returns. The recent rate cuts by the Bank of Canada could be the trigger for an extended rebound in the share price of some of Canada’s top dividend-growth stocks.
Enbridge
Enbridge (TSX:ENB) raised the dividend in each of the past 29 years and the track record looks set to continue.
Canada’s largest energy infrastructure player is growing its asset base through acquisitions and development projects. The company bought an oil export terminal in Texas for US$3 billion and is in the process of wrapping up its US$14 billion purchase of three American natural gas utilities. That deal will make Enbridge the largest natural gas utility operator in North America. Cash flow from the utilities is rate-regulated and tends to be both predictable and reliable.
Enbridge is also expanding its renewable energy group and has a stake in the new Woodfibre liquified natural gas (LNG) facility being built in British Columbia.
Management expects the new assets to drive 3% annual growth in distributable cash flow (DCF) through 2026 and 5% DCF growth per year starting in 2027. This should support ongoing dividend increases in the same range.
Enbridge has trended higher since last October on the expectation of rate cuts. More upside is likely on the way as interest rates have already declined in Canada and are expected to start falling south of the border in the coming months.
Investors who buy ENB stock at the current level can get a dividend yield of 7.25%.
Fortis
Fortis (TSX:FTS) raised its dividend in each of the past 50 years. The dividend yield is only 4.2% right now, but the anticipated dividend increases in the coming years will steadily boost the return on the initial investment and should lead to a higher share price.
Fortis owns $68 billion in utility assets across Canada, the United States, and the Caribbean. The businesses include power-generation facilities, electric transmission networks, and natural gas utilities. As with Enbridge, the company grows through strategic acquisitions and organic projects. Fortis hasn’t made a large acquisition for several years, but the $25 billion capital program is expected to boost the rate base from $37 billion in 2023 to nearly $50 billion by 2028. As new assets go into service, the resulting increase in cash flow should support planned dividend increases of 4-6% per year.
Fortis trades near $56.50 at the time of writing. The stock is up from a 12-month low of around $50 but is still way off the $65 it reached in 2022. Lower interest rates will reduce borrowing costs and should boost profits in the next few years.
The bottom line on top stocks for dividend growth
Enbridge and Fortis pay attractive dividends that should continue to grow. If you have some cash to put to work in a TFSA targeting dividend growth, these stocks deserve to be on your radar.
