Canadian pensioners are searching for reliable dividend stocks to add to their self-directed Tax-Free Savings Account (TFSA) focused on generating passive income to complement the Canada Pension Plan, Old Age Security, and other retirement earnings.
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Fortis
Fortis (TSX: FTS) is a Canadian utility company with $75 billion in electric and natural gas utility assets located in five Canadian provinces, 10 American states, and three countries in the Caribbean. Nearly all of the revenue comes from rate-regulated businesses, so cash flow is normally very predictable and reliable. This enables management to make long-term investment plans while maintaining steady and growing distributions to shareholders.
Fortis is currently working on a $26 billion capital program that will raise the rate base from $39 billion in 2024 to $53 billion in 2029. As the new assets are completed and go into service, the boost to earnings should support planned annual dividend increases of 4% to 6%.
Fortis is evaluating other investment opportunities for growth that would extend the guidance beyond the current five-year plan. Rising electricity demand in the United States provides the potential for expanding the company’s electric transmission network. Fortis is also considering options for liquified natural gas (LNG) infrastructure in British Columbia to tap the growing international demand for Canadian natural gas.
Fortis has a strong track record of making successful strategic acquisitions to drive additional growth. The company hasn’t done a large deal in several years, but falling interest rates could spark a new round of consolidation in the utility sector.
Fortis raised its dividend in each of the past 51 years. The current dividend yield of 3.7% is lower than what you can get from other TSX stocks, but the steady dividend growth increases the yield on the initial investment, and the stock is a low-stress holding for cautious investors.
Enbridge
Enbridge (TSX: ENB) bulked up its natural gas distribution business last year with its US$14 billion purchase of three natural gas utilities. The deals made Enbridge the largest natural gas utility operator in North America. Natural gas demand, both domestic and international, is expected to rise in the coming years as new gas-fired power generation facilities are built to feed electricity to artificial intelligence data centres. Enbridge’s extensive natural gas transmission and storage network in Canada and the United States, combined with the utilities, puts the company in a strong position to benefit from higher natural gas demand. Enbridge is also a partner in the Woodfibre liquified natural gas (LNG) export facility being built in British Columbia.
On the oil side, Enbridge remains a key player in getting crude oil from producers to refineries and export sites. The company transports roughly 30% of the oil produced in Canada and the United States. Enbridge also has an oil export terminal in Texas.
Wind and solar assets in North America and Europe round out the asset portfolio.
Enbridge is working on a $28 billion capital program that should drive cash flow growth to support steady dividend increases over the medium term. The board raised the payout in each of the past 30 years. Investors who buy ENB stock at the current price can get a dividend yield of 6%.
The bottom line on top stocks for passive income
Fortis and Enbridge pay attractive dividends that should continue to grow. If you have some cash to put to work in a TFSA targeting passive income, these stocks deserve to be on your radar.
