Canadian pensioners are looking for ways to boost income as the cost of living steadily rises. One strategy to get better returns on savings is to own reliable dividend stocks inside a self-directed Tax-Free Savings Account (TFSA) focused on generating tax-free passive income.
The recent pullback in the share prices of some top TSX dividend stocks is providing an attractive entry point for new investors.
Source: Getty Images
Enbridge
Enbridge (TSX: ENB) has been on a strong run for most of the past three years, rising from $44 in late 2023 to a recent high above $80.
The stock has pulled back about 10% in recent weeks, however, amid a rotation out of pipeline stocks as investors book profits and rebalanced portfolios.
Additional downside is certainly possible in the near term as rising yields in government bonds signal expectations for interest rate hikes in the United States and Canada. Higher borrowing costs can be a headwind for businesses that use a lot of debt to fund growth initiatives. Elevated debt expenses can eat into profits and reduce cash available for dividends or debt payments.
That being said, Enbridge’s $41 billion secured capital program is expected to drive 5% annual growth in distributable cash flow (DCF) in the next few years. This should enable the board to continue raising the dividend. Enbridge has given investors an increase in each of the past 31 years. Investors who buy at the current price can get a dividend yield of 5.4%.
The North American energy sector is in a strong growth cycle that will require additional oil and natural gas infrastructure to move fuel to new power-generation facilities and export terminals. Enbridge has a large presence in both Canada and the United States and is positioned well to benefit from the trend.
Fortis
Fortis (TSX: FTS) owns and operates power generation, electricity transmission, and natural gas distribution utilities primarily located in Canada and the United States. As with Enbridge, the company’s large presence in the American market gives investors good exposure to U.S. growth through a top Canadian utility stock.
Fortis has a $28.8 billion capital program on the go that is expected to raise the rate base from $42 billion to $58 billion over five years. As the new assets are completed and start to generate revenue, the boost to earnings and cash flow should be adequate to support planned annual dividend increases of 4% to 6% through 2030. Fortis raised the dividend in each of the past 52 years, so investors should feel comfortable with the guidance.
Canada’s plan to build a national power grid could lead to new projects for Fortis in the domestic market. The company is also in a good position to take advantage of rising natural gas and electricity demand south of the border. Gas-fired power generation facilities are being built to supply electricity to new AI data centres. New power transmission infrastructure will also be required in the coming years.
The bottom line
Enbridge and Fortis pay good dividends that should continue to grow. If you have some money to put to work in a portfolio focused on passive income, these stocks deserve to be on your radar.
