With the TSX sitting near its record high and valuations stretched in some sectors, it makes sense for investors to consider top Canadian dividend-growth stocks for their Tax-Free Savings Account (TFSA) portfolios focused on delivering passive income and total returns.
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TFSA limit 2026
The TFSA contribution limit in 2026 is $7,000. This brings the cumulative maximum contribution room per person to $109,000 for anyone who has qualified since the government launched the TFSA in 2009.
A popular TFSA strategy for growing the size of the savings fund is to buy reliable dividend-growth stocks and use the distributions to acquire new shares. This sets off a powerful compounding process. Each dividend payment that buys more shares creates an even larger dividend payout on the next distribution. The impact on the portfolio is small at the beginning, but it can turn modest initial investments into significant savings over the course of 20 or 30 years, especially when dividends increase and the share price drifts higher.
Fortis
Fortis (TSX:FTS) is a good example of a top TSX dividend growth stock. The board has increased the distribution annually for the past 52 years.
Fortis owns assets that deliver steady rate-regulated revenue through the full economic cycle. The company owns power generation facilities, electric transmission networks, and natural gas distribution utilities. These tend to be recession-resistant businesses due to the essential nature of their products and services.
Fortis grows by making strategic acquisitions and through development projects. The current $28.8 billion capital program will increase the rate base by a compound annual rate of about 7% over five years. As the new assets are completed and go into service Fortis expects the boost to cash flow to support planned annual dividend growth of 4% to 6% through 2030.
As Canada moves forward on its plan to build a national power grid Fortis could play a role in the process due to its expertise in the sector. New capital projects or additional acquisitions would likely extend the dividend-growth guidance.
Fortis provides a 2% discount on shares purchased using the company’s dividend reinvestment plan (DRIP). At the time of writing, FTS stock has a dividend yield of 3.5%.
A $10,000 investment in Fortis just 20 years ago would be worth about $65,000 today with the dividends reinvested.
Risks
Fortis isn’t immune to pullbacks. The share price came under pressure in 2022 and 2023 when the Bank of Canada and the U.S. Federal Reserve aggressively raised interest rates to get inflation under control. A rebound in the stock has followed the subsequent rate cuts. Fortis uses debt to fund part of its growth program, so higher interest rates can cut into profits and reduce cash flow available for dividend payments.
The U.S. is expected to reduce rates again in 2026. Canada will likely keep its rate at the current level. Any surge in inflation, however, could force the central banks to raise rates. This would be a headwind for Fortis.
The bottom line
Fortis might not deliver the same returns over the next 20 years, but the stock still deserves to be on your radar for a TFSA portfolio focused on dividend growth. Pullbacks in the share price would be opportunities to add to the position.
