Canadian savers are looking for quality TSX stocks to own inside their self-directed Tax-Free Savings Account (TFSA) to generate income and long-term capital gains. One popular strategy involves owning dividend stocks with histories of providing steady distribution growth.
Fortis
Fortis (TSX:FTS) is a Canadian utility stock with $69 billion in assets located across Canada, the United States, and the Caribbean. The businesses include power-generation facilities, natural gas distribution utilities, and electric transmission networks.
Rate cuts by the Bank of Canada have spurred renewed interest in utility stocks that pulled back as rates rose in 2022 and 2023. More upside should be on the way as interest rates continue to decline. Fortis uses debt to fund part of its growth program, so lower rates will decrease borrowing expenses.
Fortis raised the dividend in each of the past 50 years. Ongoing annual dividend increases are targeted at 4-6%, supported by the $25 billion capital program. Investors who buy Fortis at the current level can get a dividend yield of 3.9%.
Enbridge
Enbridge (TSX:ENB) has increased its dividend 29 years in a row. The energy infrastructure giant is best known for its oil pipelines that move about 30% of the oil produced in Canada and the United States, but Enbridge also has renewable energy assets, natural gas distribution utilities, and energy export facilities.
The company’s recent US$14 billion purchase of three natural gas utilities in the United States and the ongoing $24 billion capital program is expected to help boost distributable cash flow by 3% per year through 2026 and by 5% beginning in 2027. This should enable steady dividend growth in the same range.
At the time of writing, Enbridge provides a dividend yield of 6.7%.
TD Bank
TD (TSX:TD) is a contrarian pick. The bank is out of favour with investors due to troubles at its American operations, where regulators are investigating TD for not having adequate systems in place to detect and prevent money laundering. TD has already set aside more than US$3 billion to cover anticipated fines related to the issues. This is a big hit, and the company recently sold part of its stake in Charles Schwab to cover the charges.
Headwinds will likely persist for the stock in the near term as investors worry about TD potentially being forced to scale back its U.S. growth ambitions. That being said, the bank will eventually get the situation sorted out, and TD remains very profitable.
Investors who buy TD at the current price near $80 can get a decent 5.1% dividend yield while they wait for the recovery. TD traded as high as $108 in early 2022, so there is meaningful upside potential.
The bottom line on top TFSA stocks
Fortis, Enbridge, and TD Bank pay attractive dividends that should continue to grow. If you have some cash to put to work in a self-directed TFSA, these stocks deserve to be on your radar.
