Dividend stocks are moving higher after consecutive rate cuts by the Bank of Canada. More easing is likely on the way in Canada, and the United States is expected to cut soon as the central banks try to head off a possible recession.
Investors who missed the recent rally in dividend stocks can still find good deals in the TSX on names that have great track records of distribution growth for a self-directed Tax-Free Savings Account.
Fortis
Fortis (TSX:FTS) raised its dividend in each of the past 50 years. This is one of the best dividend-growth streaks in the Canadian market, and the trend is expected to continue.
Fortis is working on a $25 billion capital program that will see the rate base increase from $37 billion in 2023 to more than $49 billion in 2028. Acquisitions and other projects under consideration could boost the growth profile. As it stands, Fortis expects revenue and cash flow growth from new assets to support planned annual dividend increases of 4% to 6%.
Utilities use debt to help fund their development projects. As borrowing costs decline over the next couple of years there should be a positive impact on the bottom line while more cash should be freed up for dividends.
Fortis gets nearly all of its revenue from rate-regulated assets, including power-generation facilities, electricity transmission networks, and natural gas distribution utilities that provide essential services. This means Fortis should be a good stock to own even if there is a recession. Homeowners and businesses need to keep the building heated and the lights on regardless of the state of the economy.
Fortis trades near $58 at the time of writing. It is up nearly 10% in the past month, but remains below the $65 it reached in 2022, so there is still decent upside potential. Investors who buy FTS stock at the current price can get a 4% dividend yield.
TC Energy
TC Energy (TSX:TRP) is up 15% in the past month driven by lower borrowing costs and good progress on debt reduction. The company is on track to monetize roughly $8 billion in non-core assets to offset the cost surge it endured on its 670km Coastal GasLink pipeline project that saw the budget more than double to about $14.5 billion. TC Energy reached mechanical completion on the natural gas pipeline late last year and expects commercial operation to begin in 2025 once the LNG Canada facility being built on the coast of British Columbia is complete.
TC Energy has raised its dividend in each of the past 24 years. The ongoing capital program is expected to see investments of about $8 billion in 2024 and an annual rate of $6 billion to $7 billion starting in 2025. This should drive steady cash flow growth to support ongoing dividend increases.
The stock has had a nice run, but more gains should be on the way. TC Energy was as high as $74 per share in 2022. Investors who buy at the current level can get a dividend yield of 6.5%.
The bottom line on top dividend-growth stocks
Near-term volatility should be expected after the sharp rallies over the past few weeks. However, Fortis and TC Energy are great examples of stocks with long track records of dividend growth that deserve to be on your radar as the central banks cut interest rates.
