New retirees want to get the most passive income possible out of their investments without taking on too much risk. They also want the dividend income stream to grow at a steady pace to help offset the impact of inflation.
TFSA income
One popular strategy for generating passive income involves buying top TSX dividend-growth stocks inside a Tax-Free Savings account (TFSA). The cumulative maximum TFSA contribution space in 2023 is $88,000, and the TFSA limit increase for 2024 will be at least $6,500, giving investors even more room.
All interest, dividends, and capital gains earned inside the TFSA and removed as income remain tax-free. In addition, the withdrawals open up equivalent new contribution space in the following calendar year.
The best dividend stocks to buy are ones that have long track records of dividend growth through all economic conditions.
Fortis
Fortis (TSX:FTS) increased its dividend in each of the past 49 years and is providing dividend growth guidance for increases of at least 4% annually through 2027, supported by the current $22.3 billion capital program.
FTS stock trades near $56.50 at the time of writing compared to more than $61.50 in May. Investors who buy the dip can get a 4% dividend yield.
Fortis gets 99% of its revenue from rate-regulated utility businesses. The $65 billion in assets includes power generation facilities, power transmission networks, and natural gas distribution utilities. These generate reliable and predictable streams of cash flow.
BCE
BCE (TSX:BCE) increased its dividend by at least 5% in each of the past 15 years. The stock is down considerably from its 2022 high, giving investors a good opportunity to buy BCE at a discount and pick up a solid 6.7% dividend yield.
BCE is facing some headwinds in its media division as advertisers reduce their marketing budgets to preserve cash flow. High interest rates are also driving up borrowing costs. The telco has a large capital program and it uses debt as part of the funding mix.
That being said, BCE expects overall revenue and free cash flow to increase in 2023 compared to last year. This should support a decent dividend hike for 2024.
TC Energy
TC Energy (TSX:TRP) has increased its dividend annually for more than two decades. The current $34 billion capital program is expected to support ongoing dividend hikes of at least 3% per year.
TC Energy trades near $51 right now compared to the 12-month high around $71. Energy infrastructure stocks have all come under pressure over the past year due to soaring borrowing costs and fears that a recession could dent fuel demand and put pressure on revenues. TC Energy operates 93,000 km of natural gas pipelines and more than 650 billion cubic feet of natural gas storage capacity, along with oil pipelines and power generation facilities. Natural gas demand is expected to remain robust in the coming years as utilities switch from oil and coal to natural gas to produce power.
TRP stock is probably oversold at this point and investors can now get a 7.3% dividend yield.
The bottom line on top stocks for passive income
Fortis, BCE, and TC Energy pay attractive dividends that should continue to grow. If you have some cash to put to work in a self-directed retirement portfolio, these stocks deserve to be on your radar.
