Canadians have an extra $7,000 in Tax-Free Savings Account (TFSA) contribution room this year. With the TSX near its record high, investors are wondering which stocks are attractive right now for a TFSA portfolio focused on dividends and long-term capital gains.
In the current market conditions, it makes sense to search for companies that have good track records of delivering steady dividend growth throughout the economic cycle.
Enbridge
Enbridge (TSX:ENB) trades near $65.50 at the time of writing, compared to the 12-month high around $70 it reached at the end of Q3 last year. Investors can take advantage of the pullback to pick up a solid 5.9% dividend yield.
Enbridge used to grow by building large new oil and natural gas pipelines across Canada and through the United States. Oil and natural gas transmission projects are still occurring, but mostly on a smaller scale. Public and government opposition to large new major pipeline developments in the past decade forced Enbridge to expand its assets in exports, utilities, and renewable energy.
The company purchased an oil export terminal in Texas and is a partner on the Woodfibre liquified natural gas (LNG) export facility being built in British Columbia. International demand for North American energy is expected to rise as countries seek out reliable supplies from stable countries.
Utility business
On the utilities side, Enbridge spent US$14 billion in 2024 to buy three natural gas utilities in the United States. The deals made Enbridge the largest natural gas utility operator in North America. These assets, when combined with the existing natural gas transmission network, position Enbridge to benefit from the expected rise in natural gas demand as gas-fired power generation facilities are built to supply power to AI data centres.
Enbridge’s wind and solar business has also expanded in the past few years with an acquisition and projects in the United States and Europe.
Ongong dividend increases
The current $35 billion secured capital program should drive revenue and cash flow growth to support ongoing dividend increases. Enbridge raised the dividend in each of the past 31 years. As Canada now looks for ways to reduce its reliance on the United States for energy, new oil and gas pipelines could get built to get product to export sites on the coast. If that happens, Enbridge could potentially participate in the development and operation of the new infrastructure.
Fortis
Fortis (TSX:FTS) has increased its dividend for 52 consecutive years. This is the kind of reliability investors want to see when looking for a defensive dividend stock to add to a portfolio.
Fortis operates power generation facilities, electric transmission networks, and natural gas distribution utilities in Canada, the United States, and the Caribbean. Nearly all of the revenue comes from rate-regulated assets. That means cash flow tends to be steady and predictable.
Fortis hasn’t made a large acquisition in several years, but the company is still expanding through organic projects. The current $28.8 billion capital program is expected to boost the rate base by 7% per year over five years. As the new assets are completed and start generating revenue, the increase in profits should enable Fortis to meet its goal of annual dividend increases of 4 to 6% through 2030. Investors who buy FTS stock at the current price can get a dividend yield of 3.6%.
Canada’s plan to build a nationwide power grid could provide additional project opportunities for Fortis in the next few years.
The bottom line
Enbridge and Fortis pay attractive dividends that should continue to grow. If you have some cash to put to work in a TFSA focused on dividends and total returns, these stocks deserve to be on your radar.
