When building a reliable source of passive income, dividend-paying stocks often come to mind. While no stock can promise guaranteed dividends forever, certain companies have a long history of paying and, more importantly, increasing their dividends over time. These are typically large, established businesses with strong fundamentals and are commonly called blue-chip stocks.
Blue-chip dividend stocks are attractive because they offer a dual benefit. They provide steady cash flow through regular dividend payments and have the potential for long-term capital growth. These companies usually have resilient business models, a growing earnings base, and the ability to weather macro challenges. This makes them a preferred choice for investors seeking income, stability, and gradual wealth creation.
Against this backdrop, here are three blue-chip dividend stocks that every Canadian should own.
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Blue-chip dividend stock #1
Enbridge (TSX:ENB) is one of the best blue-chip dividend stocks Canadians should own. This oil and gas transportation company has a solid history of paying and growing its dividends for decades. It has consistently paid dividends for 70 years and raised them for three decades. Moreover, ENB stock offers a yield of about 6%. Further, Enbridge has a payout ratio of 60–70% of distributable cash flow (DCF), which is sustainable.
Enbridge’s payouts are supported by its resilient business model, diversified income stream, growing earnings base, and robust cash flows. Enbridge’s long-term contracts, extensive network of liquid pipelines, and high asset utilization rate support its financials and dividend payouts. Moreover, most of its earnings are insulated from commodity price volatility, which adds stability and ensures consistent payouts.
Enbridge will continue to benefit from its diversified asset base and commercial arrangements that reduce volume and commodity risks. Moreover, its investment in renewable energy and regulated utility assets positions it well to generate solid earnings and DCF. Moreover, its focus on strategic acquisitions will support its growth and dividend payouts.
Blue-chip dividend stock #2
Fortis (TSX:FTS) is another blue-chip dividend stock Canadians should own. This electric utility company operates a defensive business and generates low-risk cash flows. Notably, its rate-regulated assets generate predictable earnings that enable Fortis to consistently pay and increase its distributions. Fortis hiked its distributions for 51 consecutive years. Moreover, it is well-positioned to maintain this streak in the coming years.
Fortis’ $26 billion capital plan will likely expand the company’s rate base, driving higher earnings and dividends. The utility company sees its rate base growing at a compound annual growth rate (CAGR) of 6.5% through 2029, which will help it increase its annual dividends by 4-6% during the same period.
While Fortis offers visibility over its future payouts, its solid transmission investment pipeline and energy transition opportunities augur well for growth and will support its payouts.
Blue-chip dividend stock #3
Bank of Montreal (TSX:BMO) is another blue-chip dividend stock that has the potential to generate steady passive income for decades. Notably, this leading Canadian bank has distributed dividends for 196 years in a row, the longest streak of distributions among Canadian companies. Further, its dividend has increased at a CAGR of 5.4% over the past 15 years.
The bank’s ability to consistently increase its earnings supports its growing payouts. While its payouts are sustainable, it offers a high yield of 4.8%.
Bank of Montreal’s diverse revenue sources, growing loans and deposit base, solid credit performance, improving efficiency, and robust balance sheet position it well to deliver solid earnings. The bank’s earnings per share will likely increase at a high single-digit rate in the medium term, driving higher payouts.
