Investing in fundamentally strong dividend stocks can help you earn worry-free passive income that will grow over time. Moreover, as dividends, capital gains, and interests earned in a TFSA (Tax-Free Savings Account) are not taxed, investors can leverage the TFSA to make tax-free yields.
Against this background, let’s look at top Canadian stocks that are dependable investments to earn passive income in all market conditions. These companies are Dividend Aristocrats, and one can make about $1,650/year tax-free by investing in these stocks near the current market price.
Source: Getty Images
Enbridge
Investors seeking a growing passive income stream can rely on Enbridge (TSX:ENB). This energy infrastructure company that transports oil and gas has a history of paying and increasing dividend payments irrespective of economic situations.
Enbridge has been paying a regular dividend for over 69 years. Recently, it raised its quarterly dividend by 3.1% to $0.915 per share. Including this hike, this energy has now increased its dividend for 29 consecutive years. What stands out is that Enbridge offers a compelling yield of 7.5% (based on its closing price of $48.77 on January 17). Moreover, its dividend-payout ratio of 60-70% of distributable cash flow (DCF) is sustainable in the long term.
In the future, Enbridge’s diversified income sources, power-purchase agreements, long-term contracts, and multi-billion-dollar secured projects will drive its DCF per share and support higher dividend payments in the coming years. Furthermore, Enbridge’s growing base of conventional and renewable energy assets position it well to capitalize on energy demand. Meanwhile, its focus on accretive acquisitions bodes well for growth and supports its payout.
Bank of Montreal
Income investors should keep a close watch on leading Canadian banks, which have been popular for paying dividends for decades. With the banking space, consider investing in the shares of Bank of Montreal (TSX:BMO). This financial services giant has been paying a dividend for 195 years, the longest of any Canadian company. Moreover, its dividend sports a compound annual growth rate (CAGR) of 5%.
Bank of Montreal’s payouts are supported by its ability to deliver profitable growth. Its diversified revenue streams, ability to grow loans and deposits, and improving operational efficiency will likely drive its earnings and dividend payments. Bank of Montreal expects its earnings per share (EPS) to grow at a CAGR of 7-10% in the medium term, positioning the company to increase its dividend at a mid-single-digit rate. BMO stock offers a yield of 4.8% based on its closing price of $126.36 on January 17.
Fortis
Fortis (TSX:FTS) is a no-brainer stock to warn tax-free passive income. This utility giant has raised its dividend for 50 consecutive years. Further, it is on track to increase its future dividend at a CAGR of 4-6%. The company’s regulated business and predictable cash flows make it relatively resilient to macro headwinds and enable it to enhance its shareholders’ value through higher dividend payments.
Fortis expects its rate base to continue to increase at a CAGR of 6.3% through 2028. This will expand the company’s earnings base and position it well to grow its quarterly payouts. Fortis currently pays a quarterly dividend of $0.59 a share, reflecting a yield of 4.3%.
Bottom line
These Canadian stocks are perfect for earning worry-free passive income. Moreover, these stocks offer an average yield of over 5.5% near the current price. This implies that an investment of $10,000 in each stock will help you earn a tax-free passive income of $1,650/year.
