Market volatility is tough to watch for people who rely on their Tax-Free Savings Account (TFSA) stock holding to generate reliable income. In the current environment, it makes sense to look for good TSX dividend-growth stocks that have solid track records of raising the distributions in challenging economic conditions.
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Enbridge
Enbridge (TSX: ENB) is up 30% in the past year and not far off the 12-month high.
Pipeline stocks are benefitting from reduced interest rates in Canada and the United States. Energy infrastructure firms, like Enbridge, borrow money to build out large projects that often cost billions of dollars and can take years to finish. When interest rates soared in 2022 and 2023, these stocks took a hit. Enbridge fell from $59 to as low as $44 in 2023 before the new rally began when the Bank of Canada and the U.S. Federal Reserve said they were done raising interest rates in their battle against inflation.
Falling interest rates have also led to lower rates offered on Guaranteed Investment Certificates (GICs). This might be another driver of funds back into reliable dividend names, including Enbridge. The board at Enbridge has increased the dividend in each of the past 30 years.
Looking ahead, investors should expect to see ongoing dividend hikes in line with 3% projected growth in distributable cash flow. Enbridge is working on a $26 billion capital program and will see full-year benefits in 2025 from its US$14 billion acquisition of three natural gas utilities in the United States in 2024.
Investors who buy ENB stock at the current level can get a dividend yield of 6%.
Fortis
Fortis (TSX: FTS) only has a dividend yield of 3.7%, but the steady dividend growth raises the yield on the initial investment each year, making Fortis the type of stock income investors can buy and simply forget about for decades.
The company owns utilities in Canada, the United States, and the Caribbean. Businesses include natural gas utilities, power generation facilities, and electricity transmission networks. Revenue from these assets is primarily rate-regulated. This means cash flow tends to be predictable and reliable, and people need natural gas and electricity regardless of the state of the economy.
Like Enbridge, Fortis has its own $26 billion capital program on the go that will boost the rate base considerably from $39 billion in 2024 to $53 billion in 2029. As the new assets are completed and go into service, the resulting increase in revenue and cash flow should support planned annual dividend increases of 4% to 6% over the five years. Fortis has other projects under consideration that could get added to the mix. Acquisition opportunities might also emerge if consolidation ramps up in the utility sector.
Fortis raised the dividend in each of the past 51 years.
The bottom line on top stocks for passive income
Enbridge and Fortis pay good dividends that should continue to grow. If you have some cash to put to work in a TFSA focused on passive income, these stocks deserve to be on your radar.
