A popular strategy for building a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio involves owning quality TSX dividend stocks.
Pensioners can generate steady passive income inside a TFSA. Younger investors might decide to use dividends to buy more shares to harness the power of compounding.
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Fortis
Fortis (TSX: FTS) has increased its dividend for 51 consecutive years, including the latest 4.2% hike, and intends to boost the payout by 4-6% annually through at least 2029.
Fortis just announced the third quarter (Q3) of 2024 results that came in better than last year, with adjusted net earnings rising from $411 million to $420 million, or $0.85 per share compared to $0.84 per share in the same period last year. For the first three quarters of 2024, net earnings are up $85 million to $1.2 billion in 2023.
Under the new 2025-2029 capital program, the company intends to invest $26 billion on growth projects. The result should be a boost to the rate base from $38.8 billion in 2024 to $53 billion in 2029. As new assets go into service, the increase in revenue and cash flow should support the planned dividend growth.
Falling interest rates will reduce borrowing costs for Fortis. This could lead to more projects being added to the capital plan. Fortis has also expanded through acquisitions in the past. Cheaper financing in the next couple of years might ignite a new wave of consolidation in the utilities sector.
Investors who buy Fortis stock at the current level can get a dividend yield of 4.1%.
Enbridge
Enbridge (TSX: ENB) recently completed the final leg of its US$14 billion purchase of three natural gas utilities in the United States. The acquisitions make Enbridge the largest natural gas utility company in North America.
In the past few years, Enbridge’s investments have focused on diversifying the asset base. The core oil and natural gas transmission infrastructure remains strategically important, but Enbridge is also positioned to take advantage of global demand for oil and natural gas through its investments in export facilities. In addition, Enbridge has a growing renewable energy division that builds solar and wind projects in North America and Europe.
Enbridge’s current $24 billion capital program will help boost revenue and distributable cash flow (DCF) in the next few years. This should provide support for ongoing dividend increases. Enbridge raised the distribution in each of the past 29 years.
Enbridge reported adjusted earnings for the first three quarters of 2024 that are slightly higher than the same period last year. Management confirmed full-year 2024 guidance, with earnings before interest, taxes, depreciation, and amortization (EBITDA) expected to be in the upper end of the guidance range and DCF likely to land in the middle of the 2024 target.
Investors who buy ENB stock at the current level can get a dividend yield of 6.5%.
The bottom line on top TSX stocks for dividends
Fortis and Enbridge are good examples of reliable dividend-growth stocks that pay attractive distributions. If you have some cash to put to work in a portfolio focused on dividend growth and passive income, these stocks deserve to be on your radar.
