With equity markets near record highs, Canadian investors are wondering which stocks might still be attractive for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio focused on generating dividends and long-term total returns.
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Fortis
Fortis (TSX: FTS) is a good example of a Canadian dividend stock that investors can buy and hold for decades.
The company owns and operates utility businesses in Canada, the United States, and the Caribbean. Assets include power generation facilities, electric transmission networks, and natural gas distribution utilities. Nearly all of the revenue comes from rate-regulated operations. This means cash flow tends to be predictable, which is great for investors who are searching for a stable dividend payer.
Fortis should also be a good stock to hold through a recession. Commercial and residential buildings require power and natural gas regardless of the state of the economy.
Fortis is working through a $28.8 billion capital program that is expected to boost the rate base by about 7% per year over five years. As the new assets are completed and go into service, the added cash flow should support planned annual dividend increases of 4% to 6% through 2030. Fortis has other projects under consideration that could get the green light and would extend or raise the dividend-growth guidance. The electricity and natural gas utility also has a strong track record of making strategic acquisitions to drive additional growth.
The board raised the dividend in each of the past 52 years. Investors who buy FTS stock at the current level can pick up a dividend yield of 3.3%.
TC Energy
TC Energy (TSX: TRP) has been on a roll in the past two years, rebounding from roughly $50 per share to the current price around $88.
The recovery is welcome news for long-term investors who endured some pain from 2022 to 2024 when rising interest rates and soaring project costs put pressure on cash flow and the balance sheet. TC Energy had to borrow extra cash to get its Coastal GasLink pipeline completed at a time when issuing debt was getting expensive.
Management did a good job of monetizing some non-core assets to reduce the debt load. Coastal GasLink, which carries Canadian natural gas to the new LNG Canada export facility in British Columbia, along with another major pipeline project in Mexico, are now complete and in service.
The surge in demand for reliable liquified natural gas supplies could lead to an expansion of the Coastal GasLink in the next few years as part of Canada’s push to become less reliant on the United States for energy sales.
TC Energy has increased the dividend annually for more than 25 years. Investors who buy the stock today can get a solid 4% dividend yield. The company has a current capital program targeting annual investments in the $6 billion range. This should provide steady cash flow growth to support ongoing dividend increases.
The bottom line
Fortis and TC Energy pay good dividends that should continue to grow. If you have some cash to put to work, these stocks deserve to be on your radar.
