Dividend investors are wondering which top TSX stocks might be attractive right now to add to a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio focused on income and total returns.
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Market outlook
Stocks in many sectors keep hitting new record highs, even as economic headwinds build. The bull run could definitely continue for some time, but rising inflation caused by high oil prices risks triggering a pullback in the second half of the year.
The more stretched valuations get, the bigger the correction is likely to be when things start to go sideways. As such, it makes sense to consider top dividend-growth stocks that will likely continue to raise their distributions even if the economy slides into a recession.
Fortis
Fortis (TSX: FTS) is up about 60% in the past two years and currently trades near its all-time high.
The company is popular with income investors who own Fortis stock for its reliable distribution growth and resistance to recession. Fortis operates rate-regulated businesses such as power generation facilities, electricity transmission networks, and natural gas distribution utilities. The revenue stream from these businesses is typically quite predictable, and demand for power and natural gas should be strong, regardless of the state of the economy.
Fortis is working on $28.8 billon in capital projects that will help boost the rate base from $44 billion in 2025 to nearly $59 billion in 2030. The cash flow generated by the new assets should enable Fortis to reach its goal of raising the dividend by 4% to 6% per year over that timeframe. Fortis increased the dividend in each of the past 52 years, so the guidance should be solid.
Fortis has expertise in building and operating power grids. This should make the company a good candidate to participate in Canada’s plan to build a national power network that connects all of the provinces. At the same time, demand for electricity is rising in the United States as new gas-fired power plants are built to provide electricity to AI data centres. Fortis already operates a large electricity transmission network in the United States, as well as natural gas distribution utilities.
The current dividend yield is 3.2%. Each increase to the distribution will raise the yield on the initial investment for investors.
Canadian Natural Resources
Canadian Natural Resources (TSX: CNQ) trades near $60 per share at the time of writing compared to more than $70 a few months ago. The pullback gives investors who missed the big rally earlier this year a chance to buy CNQ at a better price and lock in a solid 4% dividend yield.
Additional downside is possible in the near term as oil prices decline on the news of a deal between the United States and Iran to open up the Strait of Hormuz. Investors, however, should take a long-term approach when considering CNRL for their portfolios.
Demand for Canadian oil and natural gas is rising as global buyers seek out reliable supplies from stable countries. This is occurring as Canada shifts its focus to become an energy superpower. New oil and natural gas export capacity that came online in the past year is already benefitting CNRL and its peers. New pipelines and additional export terminals will enable CNRL to increase production across its assets.
CNRL raised the dividend in each of the past 26 years.
The bottom line
Fortis and CNRL pay good dividends that should continue to grow. If you have some cash to put to work in a buy-and-hold dividend portfolio, these stocks deserve to be on your radar.
