The recent dip in the share prices of some top Canadian dividend stocks is giving TSX income investors a chance to get better dividend yields.
Buying a pullback requires courage and some patience to ride out the additional potential downside, but great Canadian dividend-growth stocks normally bounce back from market corrections.
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Fortis
Fortis (TSX: FTS) trades near $60 at the time of writing compared to a recent high of around $63. The stock is still up about 13% in the past six months.
Fortis gets nearly all of its revenue from rate-regulated utility assets. This means cash flow tends to be predictable and reliable, which helps support dividend payments and gives management a foundation for pursuing growth initiatives.
Fortis owns natural gas distribution utilities, power generation facilities, and electricity transmission networks in Canada, the United States, and the Caribbean. The last two large acquisitions occurred in the United States. If interest rates in the U.S. continue to fall next year, there could be more consolidation action in the American utility sector.
In the meantime, Fortis is working on a $26 billion capital program that will boost the rate base from $38.8 billion in 2024 to $53 billion in 2029. As new assets are completed and go into service, the jump in revenue and cash flow should sustain planned annual dividend increases of 4-6% over that timeframe.
Fortis raised the dividend in each of the past 51 years. Investors who buy FTS stock at the current level can get a dividend yield of 4.1%.
TC Energy
TC Energy (TSX: TRP) trades near $66 at the time of writing compared to $70 about a month ago. The stock is up about 27% in 2024.
TC Energy saw its share price fall from $74 in 2022 to as low as $45 last year. A combination of rising interest rates and ballooning costs on a major project caused investors to move to the sidelines. TC Energy’s 670km Coastal GasLink pipeline connecting Canadian natural gas producers to a new liquified natural gas (LNG) export facility being built in British Columbia reached mechanical completion in late 2023 at an estimated budget of about $14.5 billion. This is more than double the initial budget the company expected when the project received the green light in 2018.
TC Energy had to take on extra debt to get the project across the finish line, but management has since done a good job of monetizing some non-core assets to shore up the balance sheet. The company completed a successful spin-off of its oil pipelines business this year, in addition to selling stakes in some American assets.
Looking ahead, Coastal GasLink, along with another project that is near completion in Mexico, will go into commercial service in 2025 to generate new revenue. TC Energy is also planning investments in new projects to the tune of about $6 billion per year over the medium term. This should support ongoing dividend growth. TC Energy raised the payout in each of the past 24 years.
Investors who buy TRP stock at the current level can get a dividend yield of 5%.
The bottom line on top TSX dividend stocks
Fortis and TC Energy are good examples of top TSX dividend stocks that should continue to raise their distributions. If you have some cash to put to work, these stocks deserve to be on your radar.
