Canadian pensioners are searching for ways to get better returns on their savings. One popular strategy involves owning top dividend stocks inside a self-directed Tax-Free Savings Account (TFSA) focused on generating passive income.
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Enbridge
Enbridge (TSX:ENB) is a good example of a reliable dividend-growth stock that provides a yield that is above rates offered on guaranteed investment certificates. The yield is also comfortably higher than the rate of inflation, which is important for retirees.
Enbridge used to give investors big annual dividend increases, but the company has grown so much that it now takes huge acquisitions and major development projects to move the needle in a meaningful way on profits. Dividend hikes have been in the 3% range in recent years. Investors will likely see increases continue in the 3% to 5% range, given the company’s target of boosting distributable cash flow (DCF) by an average of 5% per year over the medium term.
Enbridge has a $40 billion secured capital program underway to complement the benefits from a string of acquisitions that saw Enbridge expand its export, renewable energy, and natural gas utility holdings.
Looking ahead, Canada’s plan to become an energy superpower could open up new opportunities for Enbridge to partner on the construction and operation of new energy infrastructure in the country. South of the border, Enbridge should benefit from rising demand for natural gas being used to fuel new gas-fired power generation facilities being built to provide electricity for AI data centres.
Enbridge isn’t as cheap as it was two years ago, but the stock still provides investors with a solid 4.9% dividend yield at the current share price.
Canadian Natural Resources
Canadian Natural Resources (TSX:CNQ) produces the oil and natural gas that moves through some of Enbridge’s infrastructure on its way to refineries, utilities, or export sites. The stock can be volatile when energy prices plunge or soar, but CNRL does a good job of ensuring it can give investors a dividend increase, even when things are a bit scary for energy producers.
The company’s secret lies in its diversified production portfolio and the fact that management has the flexibility to quickly move capital around the assets to maximize value. CNRL is best known for its oil sands operations, but it also has conventional heavy oil, conventional light oil, offshore oil, and extensive natural gas production and reserves.
CNRL has raised its dividend in each of the past 26 years. Investors can take advantage of the recent dip in the share price to secure a 4.1% dividend yield.
New pipeline and export infrastructure in Canada is providing CNRL and its large peers with an opportunity to ship more oil and natural gas to global buyers. The push to get more access to international markets will likely lead to additional capacity being approved and built in the coming years. This will enable production growth to help drive higher revenue and profits.
The bottom line
Enbridge and CNRL are industry leaders paying good dividends that should continue to grow. If you have some cash to put to work in a portfolio focused on dividend income, these stocks deserve to be on your radar.
