Investing in stocks that grow and maintain a sustainable payout ratio can help generate reliable passive income for decades. The TSX has a few such fundamentally strong companies that have the potential to pay and increase their dividends in the coming years, irrespective of macro uncertainty. Their dependable and growing distribution makes them the smartest dividend stocks to buy now.
So, if you plan to invest $200 in the best Canadian dividend stocks, here are my top picks.
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Dividend stock #1
Enbridge (TSX:ENB) is one of the smartest dividend stocks to buy now. The energy infrastructure company is known for its resilient business model and well-protected payouts. Its highly diversified revenue streams, long-term contracts, and arrangements to reduce commodity price risk enable it to grow its income per share and distributable cash flow (DCF) per share in all market conditions.
Thanks to its growing DCF per share, Enbridge has paid a regular cash dividend for over 69 years. Further, its dividend has grown at a compound annual growth rate (CAGR) of 10% over the past 29 consecutive years.
While Enbridge has raised its dividend for nearly three decades, it is well-positioned to continue growing it over the next decade based on its growing earnings and DCF per share. Notably, the presence of its pipeline network in major demand and supply markets will drive the utilization of its assets and support earnings growth. Further, power-purchase agreements and regulated tolling frameworks will likely add stability.
Enbridge’s multi-billion capital projects will bring new assets into service and boost its earnings and cash flows. Further, its investments in renewable and conventional energy assets, growing portfolio of utility-like businesses, and strategic acquisitions augur well for growth.
The company’s earnings and DCF per share are forecasted to expand by a mid-single-digit rate in the long term. This will enable the firm to pay and consistently increase its dividend for years. Enbridge stock offers a high yield of 6.5% and targets a sustainable payout ratio of 60–70% of DCF.
Dividend stock #2
Canadian utility stocks are compelling investments for earning worry-free dividends. These companies benefit from a regulated business model that ensures consistent income, allowing for dependable dividend payouts.
Among the leading utility companies, Canadian Utilities (TSX:CU) stands out as the smartest dividend stock for its stellar dividend payment and growth history. The utility company raised its dividend for 52 consecutive years — the longest streak of any publicly traded Canadian company. Moreover, it offers an attractive yield of 5.1%.
The company’s resilient and growing payouts are supported by its regulated and contracted assets, which generate steady earnings. Canadian Utilities continues to invest in its regulated assets, which will expand its rate base and earnings, supporting higher distributions.
It plans to inject $4.6 to $5 billion into its regulated utilities business through 2026. This capital investment will likely drive significant earnings growth, enabling the company to grow its future dividend payments.
Besides growing its rate base, the utility company is optimizing its energy infrastructure assets, looking for new growth avenues, and improving efficiency. These moves will bolster its earnings and support higher dividend payouts.
