Canadians nearing retirement and younger investors setting up their retirement plans know that dividend stocks can be an excellent way to boost their passive income. Building a portfolio of income-generating assets in a Tax-Free Savings Account (TFSA) can let you enjoy the dividend income from the portfolio without incurring taxes on the dividends.
The key to success with such a strategy is to have a well-diversified portfolio of high-quality dividend stocks. Investing in just a few dividend stocks poses the risk of losses if the underlying businesses face challenges that force them to pause, slash, or stop dividends altogether.
The stock of fundamentally strong businesses that have the financials and future growth potential to continue funding and growing dividends can minimize the risk and maximize returns.
The TSX has no shortage of high-quality dividend stocks. Today, we will look at one of the biggest TSX energy stocks that you can consider for your portfolio.
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Enbridge
Enbridge (TSX: ENB) is a Calgary-based $147.45 billion market capitalization energy company in Canada. It owns and operates an extensive network of midstream assets, transporting around a fifth of the hydrocarbons produced and consumed in North America. The company also has a regulated natural gas utility company and Canada’s largest natural gas distribution company under its belt. Enbridge is also a player in the burgeoning renewable energy industry, with a growing portfolio of clean energy assets.
Enbridge stock is a good example of a Canadian dividend stock that investors can rely on for decades. The stock has increased its dividends for the last 30 years and does not look like it will break that streak anytime soon. The company’s revenue growth and cash flow over the years have allowed it to hike dividends for decades.
Last year, Enbridge acquired three natural gas utility businesses in the U.S., spending around US$14 billion for the deal. This deal is likely to set up the company for significant success in the long run. Utility businesses are inherently defensive due to the essential nature of the services they provide. Enbridge becoming one of them provides the company with predictable cash flows that can be critical to long-term success.
Canada has recently refocused its interest in building new major energy infrastructure to meet the rising demand for North American energy. Currently, the company is working on a massive $32 billion capital program that should further increase its distributable cash flow for years to come. It means we can expect to see Enbridge continue its dividend-growth streak for the foreseeable future.
Foolish takeaway
The stock market is still going through an uncertain period right now. It will not be surprising to see significant upticks and pullbacks in share prices in the coming weeks. However, investing in Enbridge should be more with the intent to capitalize on reliable dividends instead of potential capital gains.
If you have some cash to put into work in the market and enough space in a Tax-Free Savings Account (TFSA), I would advise allocating some space to Enbridge stock. As of this writing, it trades for $67.60 per share. You can lock in its 5.58% dividend yield into your self-directed portfolio.
