Dividend investing is one of the best strategies that Canadian investors rely on for reliable long-term wealth growth. I am not talking about investing in ultra-high-yielding dividend stocks. A sound long-term strategy focuses on sustainability and not higher dividends. Rather than picking stocks for higher yields, it is better to consider whether the underlying business is good enough to maintain and grow payouts.
The TSX boasts several high-quality stocks with a reputation for delivering rock-solid dividend payouts and lengthy dividend-growth streaks. These stocks have underlying businesses with solid fundamentals, healthy balance sheets, and the kind of consistent cash flows that make them dependable even during bear markets.
Given this backdrop, here are two TSX dividend stocks with ultra-safe dividends that might warrant a place in any self-directed income-focused portfolio.
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Fortis
Fortis Inc. (TSX:FTS) is the darling stock for many income-focused investors as a better alternative to fixed-income securities. The $34.8 billion market-cap company owns and operates 10 utility transmission and distribution assets in Canada and the US, and it has stakes in several utility companies in the Caribbean. Utility companies aren’t the most exciting for growth-seeking investors, but they offer reliable dividends.
Most of Fortis’ revenue comes from long-term contracted assets in highly rate-regulated markets. It means the cash flow is predictable and largely unaffected by broader economic volatility. The debt-intensive nature of the industry means higher interest rates can weigh on its financials. That is what likely contributed to weaker performance in recent years, but the recovery is evident since the central banks started reducing key interest rates.
Thanks to its low-risk earnings and the defensive nature of the industry, Fortis stock has increased its payout for 51 years and maintained a sustainable payout ratio. As of this writing, it trades for $69.30 per share and boasts a 3.6% dividend yield.
Canadian Natural Resources
Canadian Natural Resources Ltd. (TSX:CNQ) is another stock with ultra-safe dividends. The Calgary-headquartered $90.2 billion market-cap company is one of Western Canada’s largest oil and natural gas producers, with operations in offshore Africa and the North Sea further supplementing its operations. It has an extensive and diversified portfolio of low-decline and long-life assets. The company’s low maintenance capital spending generates significant free cash flows, even when commodity prices are volatile.
CNQ also benefits from low break-even costs to sustain dividends and operations, offering it a cushion during downturns and driving growth during upticks. CNQ stock has a 25-year dividend-growth streak, with a 21% compound annual growth rate (CAGR). The company is leveraging the low-interest rate environment to reduce its debt and position itself for potential strategic acquisitions.
As of this writing, it trades for $43.12 per share and boasts a 5.5% dividend yield.
Foolish takeaway
It’s important to remember that stock market investing is inherently risky. Dividend hikes or payout regularity are not a 100% guarantee, even when you invest in blue-chip stocks with virtually impeccable track records. By doing your due diligence, you can minimize the capital risk but not eliminate it.
Building a portfolio of such high-quality stocks in a Tax-Free Savings Account (TFSA) can be an excellent strategy. The tax-sheltered status of the account means you will not incur income or capital gains taxes on your returns. Reinvesting dividends to buy more shares can help you unlock the power of compounding to accelerate your wealth growth.
To this end, FTS stock and CNQ stock can be excellent buy-and-forget holdings to consider for your self-directed investment portfolio.
