Retirees seeking passive income and younger investors focused on total returns are wondering which Canadian dividend stocks might be good to buy right now for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio.
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Fortis
Fortis (TSX:FTS) just announced a 4.2% increase to its dividend. This extends the annual dividend-growth streak to 51 years. In addition, Fortis intends to boost the payout annually by 4-6% through at least 2029. That’s great guidance for investors seeking reliable and growing dividends.
Fortis picked up a nice tailwind in the past six months after an extended pullback. At the time of writing, the stock trades near $61.50 compared to $53 around this time in June. The rally has coincided with cuts to interest rates by the Bank of Canada and the U.S. Federal Reserve. Utility companies use debt to fund their growth initiatives, which can cost billions of dollars. The sharp increase in interest rates in 2022 and 2023 drove up borrowing costs. This can put pressure on profits while reducing cash that is available for distributions. Additional rate cuts by the central banks are anticipated through 2025.
Fortis is working on a $26 billion capital program that is expected to boost the rate base from $38.8 billion in 2024 to $53 billion in 2029. As the new assets go into service, the rise in revenue and cash flow should support the planned dividend increases. Lower interest rates will reduce debt expenses and might make some other projects under consideration profitable enough to get the green light.
Investors who buy Fortis stock at the current level can get a dividend yield of 4%.
TC Energy
TC Energy (TSX:TRP) recently spun off its oil pipelines business in a move to unlock value for investors and position the remaining business to focus on growth. The company is primarily a natural gas transmission and storage player with some power-generation facilities. TC Energy reached mechanical completion on its $14.5 billion Coastal GasLink pipeline project late last year. The 670 km pipeline will carry natural gas to a new liquified natural gas (LNG) export facility being built on the coast of British Columbia. Commercial operation is expected to begin in 2025.
TC Energy did a good job of monetizing non-core assets in the past year to shore up the balance sheet after Coastal GasLink saw its budget more than double. Management can now focus on the remaining growth projects, with annual investments expected to be in the $6 billion range over the medium term.
TC Energy raised its dividend in each of the past 24 years. The capital program should support ongoing dividend growth. Investors who buy the stock at the current level can get a yield of 5.9%.
The bottom line on tip stocks for dividend growth
Fortis and TC Energy pay attractive dividends that should continue to grow. If you have some cash to put to work in a self-directed TFSA or RRSP portfolio focused on dividends and total returns, these stocks deserve to be on your radar.
