With the TSX near a record high and economic headwinds potentially on the way, dividend investors are wondering which Canadian stocks might be good to buy today for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio focused on income and long-term returns.
One popular strategy in this environment involves seeking out companies that provide essential products or services which are in steady demand through the economic cycle.
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Fortis
Fortis (TSX: FTS) owns and operates natural gas distribution utilities, power generation facilities, and electricity transmission networks in Canada, the United States, and the Caribbean.
Households and businesses need electricity and natural gas regardless of the state of the economy. This makes Fortis a good stock to own if you are of the opinion that a recession might be on the way. In addition, Fortis gets nearly all of its revenue from rate-regulated businesses, which makes it easier for management to plan investments to expand the asset portfolio.
Fortis is currently working on a $28.8 billion capital program that will raise the rate base from $42 billion in 2025 to nearly $58 billion in 2030. As the new assets are completed and go into service the boost to cash flow should enable the board to meet its goal of increasing the dividend by 4% to 6% annually over five years.
Fortis has other projects under consideration that could get added to the capital plan. In addition, Fortis would also be a good candidate to participate in the buildout of a national power grid as Canada invests to double power capacity.
Fortis bumped up the dividend payment in each of the past 52 years, so investors should be comfortable with the guidance. The steady dividend growth should help provide support for the share price if the broader market declines. Fortis has historically bounced back from corrections. As such, any downside would be an opportunity to add to the position.
At the time of writing, FTS stock provides a dividend yield of 3.3%.
TC Energy
TC Energy (TSX: TRP) is best known for its extensive natural gas infrastructure, which includes more than 90,000 km of natural gas pipelines and 650 billion cubic feet of natural gas storage capacity located in Canada, the United States, and Mexico.
The company is also a power producer, largely coming from gas-fired cogeneration plants and nuclear facilities.
TC Energy had a rough ride after the pandemic when interest rates soared just as it had to borrow extra funds to get is Coastal GasLink pipeline project completed. The rebound in the stock occurred as management shored up the balance sheet through non-core assets sales. The completion of Coastal GasLink, which carries natural gas from Canadian producers to the new LNG Canada export facility in British Columbia, was a major milestone. TC Energy also finished a large natural pipeline project in Mexico. That one came in under budget.
Global demand for North American natural gas is expected to rise in the coming years as countries seek out reliable sources of liquified natural gas (LNG). New LNG facilities are under construction in Canada, and more could be on the way, as Canada pushes to diversify energy sales away from the heavy reliance on the U.S. market.
TC Energy’s expertise in building natural gas pipelines makes it a top prospect to participate in any large new projects.
The board raised the dividend in each of the past 26 years. Investors who buy TRP stock at the current level can get a dividend yield of 3.8%.
The bottom line
Fortis and TC Energy pay good dividends that should continue to grow. If you have some cash to put to work in a defensive portfolio focused on dividends these stocks deserve to be on your radar.
