Canadian investors are searching for ways to boost retirement income to complement CPP, OAS, and company pensions.
One popular strategy to secure a stream of passive income involves owning top TSX dividend stocks inside a self-directed Tax-Free Savings Account (TFSA).
Source: Getty Images
Enbridge
Enbridge (TSX: ENB) trades near $67 per share at the time of writing, compared to $80 in the past few months. The dip is giving investors who missed the big rally over the past two years a chance to buy ENB at a discounted price and pick up a solid 5.8% dividend yield.
The drop is primarily due to concerns about rising interest rates, rather than any significant issues with the company’s operations. Enbridge uses debt to fund part of its growth program, including acquisitions and expansions on existing assets. Development projects often cost billions of dollars and can take years to complete. As such, a big jump in borrowing costs can drive up expenses while potentially forcing some investments to be delayed or cancelled.
High inflation is back in the sights of the U.S. Federal Reserve and the Bank of Canada. The American central bank already raised interest rates once this year and markets expect more increases in the coming months. Canada will likely follow that lead. At this point, the anticipated hikes are probably built into the share price, but moves by the central banks that are more aggressive than forecast would probably put added pressure on the stock.
On the upside, Enbridge is working on a $41 billion capital program that is expected to boost distributable cash flow by about 5% annually over the medium term. This should enable the board to maintain dividend increases. Enbridge raised the dividend in each of the past 31 years.
TC Energy
TC Energy (TSX: TRP) is another Canadian energy infrastructure giant with a long track record of delivering steady dividend growth. In fact, TRP investors have received a dividend hike for 26 consecutive years.
Management did a good job of monetizing non-core assets in recent years to reduce debt that had been built up to get the Coastal GasLink pipeline completed. Among other moves, TC Energy spun-off the oil pipelines business to focus on natural gas storage and transmission, as well as power generation.
A surge in demand for natural gas in both domestic and international markets bodes well for TC Energy in the coming years. The company owns and operates strategic natural gas pipeline networks in Canada, the United States and Mexico. At home, LNG Canada is moving ahead with a major expansion to its liquefied natural gas export facilities on the coast of British Columbia. TC Energy’s Coastal GasLink pipeline carries the natural gas to the site from Canadian producers. As a result of the expansion, TC Energy intends to double Coastal GasLink’s throughput capacity.
Additional major projects could be on the horizon, including a potential pipeline that would connect natural gas producers to a proposed LNG export facility near Churchill, Manitoba that would ship LNG to Europe via Hudson Bay.
TC Energy trades near $86 per share at the time of writing compared to $100 earlier this year. Investors can now get a 4% dividend yield from the stock.
The bottom line
Enbridge and TC Energy pay good dividends that should continue to grow. If you have some cash to put to work these stocks deserve to be on your radar.
