Canadian investors are looking for ways to get early retirement income to complement their Canada Pension Plan, Old Age Security, and company pensions.
One popular strategy to build retirement funds involves owning top TSX dividend stocks inside a self-directed Tax-Free Savings Account (TFSA) and Registered Retirement Savings Plan (RRSP) portfolio and using the distributions to buy new shares.
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Power of compounding
Each time a dividend payment is used to buy new shares, the next dividend payment is larger, which can potentially buy even more shares, depending on the movement of the share price. This effect is similar to rolling a snowball to build a snowman.
The impact on a portfolio is small in the beginning, but over time, the process can turn a modest initial investment into a meaningful savings fund, especially when the company raises the dividend at a steady pace and the share price drifts higher.
Fortis
Fortis (TSX: FTS) is a good example of a top Canadian dividend-growth stock. The board has increased the dividend for 52 consecutive years, and management intends to raise the dividend by 4% to 6% annually through at least 2030.
This is the kind of guidance dividend investors should look for, especially in the current market conditions where share prices are high and the economy could be headed for some turbulence amid ongoing tariffs and trade battles.
Fortis grows through strategic acquisitions and internal development projects. In the third-quarter (Q3) 2025 earnings report, the company updated its five-year capital plan. Fortis intends to invest $28.8 billion in growth projects in the 2026 to 2030 timeframe. This will raise the rate base from roughly $42 billion in 2025 to $58 billion in 2030. As the new assets are completed and go into service, the boost to revenue and cash flow should support the planned dividend increases. Management has other opportunities under consideration that could be added to the program to extend it beyond 2030.
Fortis has not completed a major acquisition for several years. Falling interest rates in Canada and the United States could trigger a new wave of consolidation in the utility sector. Fortis has the size and balance sheet strength to make a move if the right opportunity emerges. The company recently monetized businesses it owned in Belize and the Turks and Caicos to provide extra funding capacity to pursue the growth program.
Fortis operates $75 billion in utility assets, primarily located in Canada and the United States. These include power generation facilities, electricity transmission grids, and natural gas distribution utilities. Revenue from these businesses is normally predictable and reliable.
The Canadian government is considering the construction of a cross-country power grid. If the project goes ahead, Fortis would be a good candidate to participate, given its expertise in this sector.
The bottom line
A $10,000 investment in Fortis stock 25 years ago would be worth more than $200,000 today with the dividends reinvested. There is no guarantee that the next 25 years will deliver the same returns, but the strategy of buying top TSX dividend stocks and using the distributions to acquire new shares is a proven one for building long-term savings.
If you have some cash to put to work, this stock deserves to be on your radar.
