2 Best TSX Dividend Stocks to Hold for Decades
The recent pullback in the share prices of some of Canada's leading dividend stocks presents a valuable opportunity for investors. By investing in these undervalued stocks, one can secure attractive dividend yields for a self-directed Tax-Free Savings Account (TFSA) focused on passive income. In this article, we will highlight two such stocks: Fortis (TSX:FTS) and TC Energy (TSX:TRP), both of which have a solid track record of dividend growth.
Fortis offers a dividend yield of 4.4% at the time of writing. While this yield is lower compared to some other stocks, Fortis' consistent dividend growth ensures a steadily increasing return on the initial investment over the coming years.
Fortis derives most of its revenue from rate-regulated businesses, including power-generation facilities, electric transmission networks, and natural gas distribution utilities. These essential services are needed regardless of economic conditions, making Fortis a reliable stock to own during economic downturns.
The company’s steady cash flow has enabled it to pursue growth through acquisitions and development projects. Fortis is currently working on a $25 billion capital program that will boost its rate base from $37 billion in 2023 to over $49 billion by 2028. This anticipated increase in cash flow is expected to support annual dividend increases of 4-6% over the next five years. With a track record of raising dividends for the past 50 years, Fortis provides investors with a strong sense of security.
At the time of writing, Fortis trades near $53.50, down from its 2022 high of $65. The stock is also above its 12-month low of approximately $50. As interest rates begin to decline in the United States, Fortis’ stock is likely to see further gains.
TC Energy (TSX: TRP)
TC Energy recently completed its 670 km Coastal GasLink pipeline, a project that faced numerous challenges, including cost overruns and delays. Despite these hurdles, TC Energy remains a promising dividend stock.
The Coastal GasLink pipeline project’s budget more than doubled to approximately $14.5 billion due to pandemic-related delays, adverse weather, labor issues, and rising material prices. Coupled with surging interest rates through 2022 and 2023, these challenges caused TC Energy’s stock to decline from $74 two years ago to as low as $44 in 2023.
However, investors who bought at the 12-month low are already seeing decent gains, with TC Energy trading near $52 at the time of writing. The company has taken significant steps to strengthen its balance sheet, including selling interests in U.S. assets for $5.3 billion and planning additional asset sales in 2024 to raise another $3 billion. Additionally, TC Energy recently completed a $7.15 billion bond sale to refinance loans for the Coastal GasLink project, which is expected to start delivering natural gas to a new liquified natural gas (LNG) facility in 2025.
Falling interest rates will help reduce borrowing costs for TC Energy, freeing up cash to support dividend growth. The company has raised its dividend for 24 consecutive years and is expected to continue doing so at a rate of approximately 3%, supported by a projected capital program that will see investments of $6 billion to $7 billion annually over the medium term. Investors who purchase TC Energy at the current level can secure a substantial 7.3% dividend yield.
Fortis and TC Energy are two top TSX dividend stocks with excellent track records of dividend growth and promising future prospects. Fortis offers stability and steady growth through its regulated utility businesses, while TC Energy provides a high yield and significant growth potential, particularly with its recent project completions and financial strengthening measures. For investors looking to build a TFSA focused on passive income, these stocks represent attractive opportunities to secure good dividend yields and long-term growth.