The TSX is full of dividend stocks that have paid dividends annually for decades and, in some cases, for centuries. Heading into 2025, interest rates are expected to decline as the Bank of Canada tries to avoid a recession. Lower interest rates should provide additional support for the recent rebound in undervalued dividend stocks.
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TC Energy
TC Energy (TSX: TRP) operates 93,000 km of natural gas pipelines and roughly 650 billion cubic feet of natural gas storage capacity in Canada, the United States, and Mexico. The company also has power-generation facilities and is in the process of spinning off its oil pipelines business.
Demand for natural gas is expected to grow in the coming years as new gas-fired power-generation facilities are built to supply electricity for artificial intelligence (AI) data centres. In the U.S. alone, there are more than 300 new AI data centres planned or under construction. TC Energy’s extensive gas infrastructure in the United States positions the company well to benefit.
TC Energy completed a major pipeline project last year and is targeting annual capital investments of about $6 billion over the medium term. This should drive adequate cash flow growth for dividend increases. TC Energy raised the payout in each of the past 24 years. At the time of writing, TC Energy provides a dividend yield of 6.1%.
Bank of Montreal
Bank of Montreal (TSX: BMO) has paid a dividend annually for more than 190 years. The stock is out of favour right now due to high provisions for credit losses (PCL) caused by elevated interest rates and a few large loans that have gone bad at Bank of the West, a U.S. business that Bank of Montreal bought for US$16.3 billion right before U.S. regional banks had a mini meltdown in early 2023. BMO stock trades near $118 right now compared to $150 at one point in 2022.
Investors should see PCL decline in the coming quarters as interest rates fall in the United States and Canada. The U.S. remains an important market, and Bank of Montreal’s large bet should pay off over the long term. Investors with a contrarian style might want to pick up BMO while it is discounted. At the current share price, investors can get a 5.25% dividend yield.
Fortis
Fortis (TSX: FTS) raised its dividend in each of the past 50 years. Management plans to increase the distribution annually by 4-6% through 2028, supported by a $25 billion capital program that will boost the rate base from $37 billion in 2023 to more than $49 billion over five years.
Fortis gets nearly all of its revenue from rate-regulated assets, including natural gas distribution utilities, power-generation stations, and electricity transmission networks. The predictability of the cash flow helps Fortis plan its growth strategy and enables it to provide solid dividend guidance.
The bottom line
TC Energy, Bank of Montreal, and Fortis pay good dividends that should continue to grow. If you have some cash to put to work in a self-directed dividend portfolio, these stocks deserve to be on your radar.
