Canadian retirees and other dividend investors are searching for good TSX stocks to add to a self-directed Tax-Free Savings Account (TFSA) portfolio focused on generating steady passive income.
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Fortis
Fortis (TSX: FTS) trades for $75 per share at the time of writing, compared to $83 about two months ago. The dip is giving investors who missed the rally over the past two years a chance to buy FTS stock on a decent pullback.
Fortis owns and operates nearly $80 billion in assets that include natural gas and electric utilities, power generation sites, and electricity transmission grids. Nearly all of the revenue comes from rate-regulated assets that deliver essential power and natural gas services to households and companies. This means the cash flow tends to be predictable and reliable.
Fortis is working on a $28.8 billion capital program that is expected to increase the rate base from $42 billion to nearly $58 billion over five years. As the new assets are completed and start to generate revenue, the boost to earnings should support planned annual dividend growth of 4% to 6% through at least 2030. Fortis has increased its dividend in each of the past 52 years.
Fortis has a large footprint in the United States. This gives investors good exposure to the American market through a top Canadian utility stock. Power and natural gas demand are expected to rise in the U.S. in the coming years, driven by the construction of AI data centres.
At home, Fortis could pick up new large projects as Canada moves to create a national power grid. Fortis has expertise in building and operating electricity networks with assets already in place across the country.
TC Energy
TC Energy (TSX: TRP) has delivered annual dividend growth for 26 consecutive years. This stock has also given back some gains in the past few months, dropping from $100 to the current price near $83. Investors who buy the dip can now pick up a solid 4.2% dividend yield.
TC Energy is a major player in the North American natural gas infrastructure sector with more than 90,000 km of pipelines and 650 billion cubic feet of storage located in Canada, the United States, and Mexico. The company is strategically important for the economy as it transports roughly 30% of the natural gas used in the three countries.
TC Energy is benefiting from the rise in demand for natural gas, both from foreign buyers and domestic users. TC Energy’s new Coastal GasLink pipeline carries natural gas from Canadian producers to the LNG Canada liquefied natural gas export facility in British Columbia. LNG Canada and TC Energy are planning to expand. TC Energy intends to double the capacity of Coastal GasLink to supply more natural gas as part of the phase two project at LNG Canada.
TC Energy is also working with provincial and federal stakeholders on the potential construction of a new natural gas pipeline that would move fuel from Canadian producers to a potential new LNG export facility on Hudson Bay at Churchill, Manitoba.
The bottom line
Fortis and TC Energy could see additional downside in the near term as rising interest rates put pressure on utilities and energy infrastructure stocks, so investors should prepare for some ongoing turbulence. That being said, the stocks already look attractive at these levels, and any further weakness would be an opportunity to add to the positions.
If you have some cash to put to work in a buy-and-hold income portfolio, these stocks deserve to be on your radar.
