Creating a passive-income portfolio of quality dividend stocks can be quite tricky. You need to look at the fundamentals of companies to analyze their ability to maintain and even enhance dividend payouts across business cycles.
Here are three top TSX stocks that have an enviable track record of dividend growth. Each of these companies generates stable cash flows, has a sustainable payout ratio, and trades at a reasonable valuation.
Brookfield Infrastructure Partners stock
Brookfield Infrastructure (TSX:BIP.UN) owns and operates a diversified portfolio of cash-generating assets such as data infrastructure, midstream, railroads, and toll roads. Each of these assets generates predictable cash flows, which are tied to long-term regulated contracts.
Brookfield emphasized around 90% of its funds from operations, or FFO, from segments such as utilities, transport, and data are regulated or contracted, and this number stands at 80% for its midstream business.
Brookfield Infrastructure regularly liquidates its legacy assets and reinvests the proceeds in growth projects, which drives future cash flows higher. This business model has enabled BIP to increase dividends at an annual rate of 9% in the past decade, as FFO per unit surged 11% annually in this period.
Down 35% from all-time highs, BIP stock has a forward yield of 5.2%, which is quite tasty. The company forecasts to increase dividend payouts between 5% and 9%, enhancing the effective yield over time.
Analysts remain bullish and expect the TSX stock to gain 60% in the next 12 months.
Enbridge stock
A midstream TSX giant, Enbridge (TSX:ENB), currently offers shareholders a dividend yield of 8.2%. Shares of the energy heavyweight have declined 18% in the last 12 months as the company disclosed its intention to acquire three natural gas utilities from Dominion Energy for US$14 billion.
A significant portion of the acquisition would be funded by debt, which did not impress Wall Street given recent interest rate hikes.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY |
| Brookfield Infrastructure Partners | $36.45 | 183 | $0.5175 | $95 | Quarterly |
| Enbridge | $43.28 | 154 | $0.8875 | $137 | Quarterly |
| Manulife | $24.19 | 275 | $0.365 | $100 | Quarterly |
Despite the cyclicality associated with the energy sector, ENB stock has raised dividends by 10% annually in the past 28 years. Similar to BIP, a majority of Enbridge’s cash flows are tied to inflation-linked long-term contracts, resulting in stable cash flows.
Priced at 15 times forward earnings, ENB stock trades at a discount of 30% to consensus price target estimates.
Manulife stock
The final TSX dividend stock on my list is Manulife (TSX:MFC). A financial behemoth, Manulife has $1.3 trillion in assets under management. Down 13% from all-time highs, MFC stock offers a dividend yield of almost 6%. These payouts have risen by 7% annually in the last 20 years, showcasing the resiliency of its cash flows.
Despite its massive size, Manulife has increased new business value or NBV by 10% year over year in the June quarter. It ended the second quarter with a life insurance capital adequacy test of 136%. The ratio measures the financial conditions of insurers, and a ratio of more than 100% is acceptable.
MFC stock is priced at seven times forward earnings and trades at a discount of 20% to consensus price target estimates.
The Foolish takeaway
A total of $20,000 distributed equally in these three TSX stocks will help you earn around $1,300 in annual dividend income. If these payouts rise by 7% each year, your dividend income would double in the next 10 years.
