2 Magnificent Dividend Stocks I Plan to Add to My TFSA in September

Given their solid underlying businesses, healthy growth prospects, and consistent dividend growth, these two dividend stocks are ideal for your TFSA in this uncertain outlook.

| More on:
Blocks conceptualizing Canada's Tax Free Savings Account

Source: Getty Images

Earlier this week, the Bureau of Labor Statistics announced that the Consumer Price Index in August rose 2.5% year-over-year, a 0.4% decline from July levels and lower than analysts’ projection of 2.6%. Lower-than-expected inflation numbers have raised investors’ hope of rate cuts, thus driving higher global equity markets. Amid improving investors’ sentiments, the S&P/TSX Composite Index hit a new high yesterday and closed the day 1.1% higher.

However, concerns over global growth and geopolitical tensions persist. So, investors should be careful while buying through their tax-free savings account (TFSA ), as the decline in stock prices and subsequent selling could lead to capital erosion and lower contribution margins. Given the uncertain outlook, investors should invest in stocks with solid fundamentals and consistent dividend growth. Against this backdrop, here are my two top picks.

Enbridge

Enbridge (TSX:ENB) is an energy infrastructure company with a strong presence in the midstream, utility, and renewable energy space. The Calgary-based energy company operates a highly regulated business, with around 98% of its cash flows generated by long-term cost-of-service or take-or-pay contracts. Besides, its inflation-indexed adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) shields its financials from rising prices and wage inflation.

Supported by these solid financials, Enbridge has been paying dividends for 69 years and has hiked its dividends uninterruptedly for 29 years at an annualized rate of over 10%. It currently pays a quarterly dividend of $0.915/share, translating into a forward yield of 6.7%.

Meanwhile, Enbridge is working on acquiring the third natural gas utility asset in the United States from Dominion Energy, which would make it the largest natural gas utility company in North America. Further, the company is progressing with its $24 billion secured capital program and expects to make a capital investment of $6 billion this year while putting $4 billion of projects into service. These growth initiatives could boost its cash flows. Besides, the company’s financial position also looks healthy, with its net debt-to-EBITDA ratio at 4.7.

Given its regulated business, healthy growth prospects, and solid financials, Enbridge is well-positioned to continue its dividend growth. Besides, its valuation looks attractive, with the company currently trading 18.4 times analysts’ projected earnings for the next four quarters.

Fortis

Fortis (TSX:FTS) meets the electric and natural gas needs of 3 million customers across Canada, the United States, and the Caribbean. With 93% of its assets involved in low-risk transmission and distribution businesses, the company’s financials are less susceptible to market volatility, thus delivering stable and predictable cash flows. Supported by these healthy cash flows, the company has raised its dividends for 50 years. Its forward dividend yield currently stands at a juicy 3.8%.

Further, Fortis has planned to invest around $25 billion from 2024 to 2028, with around $7 billion of these investments in the clean energy space. These investments could expand its rate base at an annualized rate of 6.3% through 2028. Meanwhile, the company plans to meet around 66% of these investments through the cash generated from its operations and equity offerings. So, these investments would not substantially raise its debt levels.

Moreover, the Bank of Canada has slashed its benchmark interest rates three times this year and could continue with its monetary easing initiatives. Given its capital-intensive business, Fortis could benefit from these monetary easing initiatives.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Rajiv Nanjapla has no position in any of the stocks mentioned. The Motley Fool recommends Enbridge and Fortis. The Motley Fool has a disclosure policy.

More on Dividend Stocks

Pile of Canadian dollar bills in various denominations
Dividend Stocks

How to Use Your TFSA to Earn $5,000 Per Year in Tax-Free Income

Are you looking for ways to earn $5,000 in TFSA passive income? Consider rebalancing your portfolio, shifting $20,000 to these…

Read more »

money cash dividends
Dividend Stocks

Dividend Powerhouses: Top Canadian Stocks to Enhance Your Portfolio

Three TSX dividend powerhouses are the top options for Canadians looking to enhance their investment portfolios.

Read more »

edit Person using calculator next to charts and graphs
Dividend Stocks

The Best Stocks to Invest $2,000 in Right Now

Do you have some extra cash to invest this month? Here are two value-priced dividend stocks to buy for a…

Read more »

Shopping card with boxes labelled REITs, ETFs, Bonds, Stocks
Dividend Stocks

TFSA: Can You Really Invest $95,000 Tax-Free?

You can, in fact, hold TSX stocks like Alimentation Couche-Tard Inc (TSX:ATD) tax-free in a TFSA. But can you hold…

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

TFSA Investors: 3 Stocks to Turbo-Charge Your Tax-Free Portfolio

The TFSA contribution room can be a significant constraint, and the most practical way to circumvent it is to choose…

Read more »

Cogs turning against each other
Dividend Stocks

Invest $15,000 in This Dividend Stock for $108.26 in Monthly Passive Income

Monthly passive income stocks can give you far more than annual returns, but dividend income that can be reinvested time…

Read more »

Business success with growing, rising charts and businessman in background
Dividend Stocks

RBC Stock’s Path to Doubling Your Investment: A Decade-Long Perspective

The Royal Bank of Canada (TSX:RY) or RBC stock has more than doubled investors' capital in 10 years and may…

Read more »

stock analysis
Dividend Stocks

3 Top Dividend Stocks Canadians Can Feel Confident Buying Aggressively

It’s essential to find the best Canadian dividend stocks to buy that you can have confidence in holding for the…

Read more »