Canadian retirees are searching for reliable dividend-growth stocks to add to their self-directed Tax-Free Savings Account (TFSA) focused on generating steady and rising passive income.
In the current market conditions with the TSX at a record high and economic uncertainty on the horizon, it makes sense to look for companies that have long track records of delivering dividend increases through challenging economic conditions.
Enbridge
Enbridge (TSX:ENB) trades near $61.50 at the time of writing compared to the 12-month high around $65.50. Investors can take advantage of the dip to pick up a dividend yield of 6.1%.
Enbridge is benefitting from its US$14 billion purchase of three U.S. natural gas utilities last year. The businesses deliver predictable revenue streams and complement Enbridge’s existing natural gas transmission and storage assets. Demand for natural gas is expected to grow in the coming years as new gas-fired power facilities are built to provide power for AI data centres.
Enbride also has a $28 billion capital program on the go that will contribute to revenue and earnings growth. This should support ongoing dividend increases in the range of 3% to 5% in line with expected growth in distributable cash flow. Enbridge raised the dividend in each of the past 30 years.
Fortis
Fortis (TSX:FTS) operates natural gas distribution utilities, along with power generation sites and electricity transmission networks. Nearly all of the revenue comes from rate-regulated businesses. This helps management plan capital spending for growth initiatives.
Fortis is working through 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 jump in revenue and profits should enable Fortis to meet its goal of raising the dividend by 4% to 6% per year over the next five years. Fortis has other projects under consideration that could get added to the development plan. The company also has a good track record of making strategic acquisitions, but hasn’t completed a large deal for several years. That could change if interest rates continue to decline and consolidation ramps up in the utility sector.
Fortis raised the dividend in each of the past 51 years. Investors who buy the stock at the current level can get a dividend yield of 3.8%. The shares trade near $64.50 at the time of writing compared to the 12-month high around $69.
Expanding electricity network infrastructure across Canada is part of the new plan to build an energy corridor that runs from coast to coast in the country. Fortis has expertise in building and operating an electrical grid, so it could potentially benefit from new investment in this segment in the coming years.
The bottom line
Enbridge and Fortis are leaders in their respective sectors and pay attractive dividends that should continue to grow. If you have some cash to put to work in a TFSA focused on passive income, these stocks look attractive in the current environment and deserve to be on your radar.
