Dividend investors are searching for good stocks to buy on pullbacks for their self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolios focused on income and long-term total returns.
Buying dips takes courage, as you never know where the bottom of a pullback will be, but great dividend stocks usually recover to eventually hit new highs.
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Fortis
A quick look at the long-term stock performance of Fortis (TSX:FTS) should give investors confidence to buy the shares anytime the price drops in a meaningful way.
Fortis gets nearly all of its revenue from regulated businesses. These include power generation facilities, electricity transmission networks, and natural gas distribution utilities. Regardless of the state of the economy, households and companies need to keep the lights on and heat or cool the building. That makes the revenue stream resistant to recession. The regulated nature of the pricing of the services means revenue tends to be predictable and reliable.
All of this helps Fortis plan its growth investments. The company’s current $28.8 billion capital program will raise the rate base from $42 billion to nearly $59 billion over five years. Revenue from the new assets will drive earnings growth to support planned annual dividend increases of 4% to 6% through at least 2030. Fortis raised the dividend in each of the past 52 years, so investors should be comfortable with the guidance.
Fortis, however, isn’t a bulletproof stock. The company uses debt to fund part of the growth program. When borrowing costs go up, as they did in 2022 and 2023, the jump in debt expenses can have a negative impact on profits, while reducing cash that is available to reduce debt or pay dividends. The sharp increase in rates that occurred when the Bank of Canada and the U.S. Federal Reserve battled to get inflation under control after the pandemic caused the sell-off in utility stocks.
That being said, pullbacks like the ones that occurred in 2022 and 2023 have typically turned out to be good entry points for patient investors.
Enbridge
Enbridge (TSX:ENB) resembles Fortis a lot more today than it did in the past. The company has shifted its growth program away from building large new oil and gas pipelines to focusing more on utilities, as well as exports and renewable energy.
Enbridge spent US$14 billion in 2024 to buy three American natural gas utilities. The deals turned Enbridge into the largest natural gas utility operator in North America. These assets, when combined with Enbridge’s extensive natural gas transmission and storage networks, position the company to benefit as demand for natural gas surges amid the boom in construction of new gas-fired power generation facilities. New AI data centres consume vast amounts of electricity, which these new facilities will provide.
Enbridge has also expanded into energy exports. It purchased an oil export terminal in Texas and is a partner on the Woodfibre liquified natural gas (LNG) export site being built in British Columbia. International demand for Canadian and American oil and natural gas is rising as countries seek out reliable supplies from stable producers.
Enbridge’s secured capital program is now $40 billion. As the new assets are completed and go into service, the boost to cash flow should enable ongoing dividend growth. Enbridge has increased the dividend for 31 consecutive years. The current dividend yield is 5%.
The bottom line
Fortis and Enbridge pay good dividends that should continue to grow. If you have cash to put to work in a dividend portfolio, these stocks deserve to be on your radar.
