Canadians seeking passive income could consider holding dividend stocks inside a Tax-Free Savings Account (TFSA). Because dividend income and capital gains earned in a TFSA are tax-sheltered, every dollar you earn stays in your pocket.
However, when selecting dividend stocks, focus on TSX stocks with a steady payout history. It’s also important to look for businesses with resilient operating models, consistent profitability, and sustainable payout ratios. These qualities can help provide a reliable, worry-free income for years to come, making them ideal TFSA stocks.
Against this background, here is an ideal TFSA stock offering a 5% yield and a solid history of consistent cash payments for decades.
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Ideal TFSA dividend stock
While the TSX has several reliable dividend payers, Enbridge (TSX: ENB) is an ideal investment for generating steady cash. The energy infrastructure company has consistently paid dividends for more than seven decades. In addition, Enbridge has raised its dividend every year since 1995, reflecting the resilience of its operations and management’s commitment to rewarding shareholders.
Supporting Enbridge’s solid distributions are its high-quality, regulated, and contracted asset base. Enbridge operates largely under regulated frameworks and long-term contractual agreements. A substantial portion of its earnings is generated through take-or-pay contracts, which allow the company to earn predictable revenue regardless of short-term commodity market volatility, supporting its payouts. Further, approximately 80% of EBITDA is indexed against inflation.
Enbridge also owns one of North America’s largest energy infrastructure networks, spanning crude oil and natural gas pipelines, storage facilities, gas utilities, and renewable energy assets. Further, its assets connect major energy-producing regions with key consumption markets, leading to higher utilization, which in turn drives its distributable cash flow (DCF) and earnings.
Enbridge also maintains a disciplined approach to capital allocation. Management targets a payout ratio of 60% to 70% of DCF, which is sustainable and also allows the management to reinvest in growth projects.
Currently, Enbridge pays a quarterly dividend of $0.97 per share, yielding over 5%. Its reliable payouts and high yield make it an ideal stock for income investors.
Enbridge to extend its dividend growth record
Enbridge has rewarded shareholders with consistent dividend growth and is well-positioned to maintain this streak. The high utilization of its assets, regulated and contracted cash flow, solid backlog, and ability to capitalize on growing energy demand augur well for growth.
Notably, Enbridge currently has a secured capital project backlog of approximately $39 billion, largely supported by long-term contractual arrangements. This backlog provides a solid base for future earnings and cash flow expansion, reducing uncertainty and strengthening the company’s capacity to support future dividend increases.
Beyond its existing pipeline, several structural trends could create additional opportunities for Enbridge. The ongoing expansion of artificial intelligence (AI) is driving a surge in electricity consumption, particularly through the development of energy-intensive data centres. At the same time, governments and corporations continue to invest heavily in energy transition initiatives, increasing the need for reliable infrastructure capable of supporting both conventional and renewable energy sources.
Overall, Enbridge’s stable cash-generating business model, substantial secured projects, and exposure to emerging energy demand trends will likely support continued earnings growth. These factors suggest that Enbridge will likely extend its history of dividend increases.
