Although investing in equity markets can be one of the best ways to create wealth, the returns are never guaranteed. These unpredictable returns can create problems for retirees, who depend on their portfolio returns to meet their expenses. However, investors can minimize these risks by investing in fundamentally strong stocks that generate stable cash flows and have paid dividends consistently, irrespective of the economy.
Here are three top Canadian dividend stocks that retirees should consider having in their portfolios.
Fortis
Fortis (TSX:FTS) is one of the safest Canadian dividend stocks to have in your portfolio, with around 93% of its assets involved in low-risk transmission and distribution businesses. Given its low-risk utility business, the company generates stable and predictable cash flows, allowing it to raise its dividends consistently for the last 49 years. It pays a quarterly dividend of $0.565/share, translating its forward yield to 4.02%.
Fortis is focused on expanding its asset base and has committed to investing around $22.3 billion from 2023 to 2027. These investments could grow its rate base at a CAGR (compound annual growth rate) of 6.2%. Meanwhile, the company expects to raise only 33% of these investments through debt, while the remaining is from its operations and DRIP (dividend reinvestment plan). So, these investments will not substantially increase its leverage and interest expenses.
Meanwhile, amid the expansion of its rate base, the company’s management hopes to grow its quarterly dividend at a CAGR of 4–6% through 2027. So, I believe Fortis would be an excellent buy for retirees.
Telus
Telecom companies earn a substantial percentage of their revenue from recurring sources, thus generating stable cash flows. Besides, the telecom sector requires a significant initial capital investment, thus creating a huge barrier for new entrants while supporting incremental margins for existing players. So, I have selected Telus (TSX:T), one of the three prominent players in the Canadian telecommunication space, as my second pick.
The company has spent around $10.4 billion since 2020 to strengthen its 5G and high-speed broadband infrastructure. As of March 31, its 5G service covered 83% of the Canadian population. Meanwhile, the company expects to make a capital investment of $1.9 billion in the last three quarters of this year to expand its reach further. Besides, its high-growth verticles, Telus International, Health, and Agriculture & Consumer Goods could continue to deliver solid performance in the coming quarters.
Given its growth prospects, Telus’ management expects its revenue and adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) to grow in double digits this year while generating free cash flows of $2 billion. So, I believe the company, which has raised its dividends 24 times since 2011, is well-positioned to continue rewarding its shareholders by paying dividends at a healthier rate. Currently, its forward yield stands at an attractive 5.71%.
TC Energy
My final pick would be TC Energy (TSX:TRP), which transports oil and natural gas across North America through a pipeline network. With long-term take-or-pay contracts and rate-regulated assets accounting for 95% of its adjusted EBITDA, commodity price fluctuations will not significantly impact its financials. So, the company generates stable and predictable cash flows, which has allowed it to raise its dividends at a CAGR of over 7% since 2000. It currently pays a quarterly dividend of $0.93/share, translating its forward yield to 6.94%.
Meanwhile, TC Energy is progressing with its $34 billion secured capital program while expecting to put $6 billion worth of projects into service this year. Besides, it is advancing with its $5 billion asset divestiture program, which could accelerate its deleveraging initiatives and allow it to invest in high-quality growth opportunities. These initiatives could boost its cash flows, thus allowing the company to maintain its dividend growth.
