Investors with some cash to put to work in their self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) are wondering which top TSX dividend stocks would be good to buy on the next pullback.
High oil prices threaten to drive up inflation and could potentially trigger a recession in the next couple of years. In this environment, it makes sense to consider stocks that have good track records of delivering dividend growth in challenging economic conditions.
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Fortis
Fortis (TSX:FTS) is one of those stable dividend stocks investors can buy and hold for decades. The board has increased the dividend in each of the past 52 years, and management intends to boost the distribution by 4% to 6% annually through at least 2030.
The reliability of the dividend growth is a big reason the stock has trended higher for decades. Buying dips has always proven to be a profitable move over the long haul.
Fortis grows through a combination of strategic acquisitions and development projects. The company hasn’t made a large purchase for several years, but is working on a capital program on nearly $29 billion. As these new assets are completed and go into service, the boost to cash flow should support the planned dividend increases.
Investors who prefer to reinvest dividends can take advantage of the 2% discount Fortis offers through its dividend reinvestment plan (DRIP). Some investors might look at the current 3.3% dividend yield and think it is too low, but the yield on the initial investment rises each time there is a dividend increase.
Fortis operates power generation facilities, electricity transmission networks, and natural gas distribution utilities. These businesses generate rate regulated revenue that is dependable regardless of the state of the economy. That helps management plan long-term growth projects that drive earnings higher to enable the dividend growth.
Risks
Fortis isn’t bullet-proof. The company uses debt to fund part of its large capital program. Projects often costs billions of dollars and can take years to complete. Sharp increases in debt expenses can put pressure on profits while reducing cash that is available to pay dividends. Big moves in interest rates can also force the company to delay or abandon projects, which impacts growth.
A steep rise in interest rates after the pandemic is the main reason investors saw Fortis drop from $64 to $50 over a six-month stretch in 2022, and they remained under pressure until rate cuts by the U.S. Federal Reserve and the Bank of Canada in 2024 eventually sparked a rebound.
The next interest rate move by the central banks could be to the upside if elevated oil prices drive inflation higher through the rest of 2026. If that scenario pans out, Fortis would face new headwinds.
The bottom line
Near-term volatility is expected, but buy-and-hold dividend investors should be comfortable owning Fortis at the current price. Any additional downside would be viewed as an opportunity to add to the position. If you are looking for a top TSX dividend pick, this stock deserves to be on your radar.
