Canadian retirees and other dividend investors are searching for good TSX stocks to add to their self-directed Tax-Free Savings Account (TFSA) portfolios focused on generating steady and growing passive income.
In the current market environment, with stock prices near record highs and economic uncertainty on the horizon, it makes sense to look for stocks with long track records of delivering dividend growth through economic downturns as well as during periods of solid economic expansion.
Fortis
Fortis (TSX:FTS) owns and operates $73 billion in assets spread out across Canada, the United States, and the Caribbean. Businesses include power generation facilities, electricity transmission networks, and natural gas distribution utilities.
Fortis gets nearly all of its revenue from rate-regulated businesses. This means cash flow tends to be both predictable and reliable, enabling management to confidently plan out growth projects. Fortis is working on a $26 billion capital program that will raise the rate base from $39 billion in 2024 to $53 billion in 2029. As new assets are completed and go into service, the boost to cash flow should support the anticipated annual dividend growth of 4% to 6% over five years. Fortis has other projects under consideration that could get added to the pipeline. Investors should get a glimpse of this when Fortis provides an update to the growth initiatives in the third quarter (Q3) of 2025 earnings report due out in early November.
The board raised the dividend in each of the past 51 years, so investors should be comfortable with the outlook for dividend growth.
Opportunities
Acquisitions are another growth driver for Fortis, although the company has not made a large purchase for several years. This could change in the medium term. Falling interest rates make borrowing cheaper and could spark a new wave of consolidation in the utility sector.
Demand for electricity is expected to rise steadily in the coming years as power-hungry artificial intelligence (AI) data centres are completed. At the same time, natural gas is viewed as a key fuel source to generate the required electricity due to the need for predictable and scalable power generation. Fortis should benefit on both fronts.
Canada’s plan to create a cross-country power grid could provide Fortis with new expansion opportunities. The company has the expertise to build and operate electricity transmission networks and already has a presence in five Canadian provinces.
Risks
Fortis uses debt to fund large capital projects that cost billions of dollars and can take years to complete. The jump in interest rates that occurred in 2022 and 2023 sent the stock into a downturn as investors worried about the impact of higher borrowing expenses. Rates peaked in late 2023 and started to fall again over the past year as the Bank of Canada and the U.S. Federal Reserve switched their focus from fighting inflation to supporting the economy.
Tariffs, however, could start to push prices higher next year as businesses exhaust stockpiles of products built up ahead of the tariffs. In the event that inflation surges, the central banks could be forced to reverse course and raise rates. This would be negative for Fortis and other utility stocks that are sensitive to rate changes.
The bottom line
Fortis currently provides a dividend yield of about 3.5%. This is lower than the yield available from some other stocks, but the dividend growth will steadily increase the yield on the initial investment, and the reliability of the distribution is an important factor to consider with economic headwinds likely on the way.
If you have some cash to put to work in a TFSA targeting passive income, this stock deserves to be on your radar.
