Investors seeking passive income are wondering which Canadian dividend stocks might be undervalued right now and good to buy for a self-directed Tax-Free Savings Account (TFSA).
Buying stocks on dips requires some courage and the patience to ride out additional downside. Reliable dividend-growth stocks, however, tend to bounce back from corrections and pay you well until that occurs.
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Enbridge
Enbridge (TSX:ENB) trades near $59 per share at the time of writing. The stock is down from the recent high of around $64.50, giving investors who missed the big rally last year a chance to pick up some ENB stock at a discount.
Enbridge raised its dividend in each of the past 30 years, and more increases should be on the way. The company is working on a $26 billion capital program that will boost adjusted earnings before interest taxes, depreciation, and amortization (EBITDA) by 7% to 9% through at least 2026. Distributable cash flow on a per-share basis is expected to increase by 3% over that timeframe. This should support ongoing dividend increases in the same range.
Enbridge has the financial clout to make large acquisitions to drive additional revenue expansion. In 2024, the company purchased three natural gas utilities in the United States for US$14 billion. The addition of these businesses further diversifies the asset base and makes Enbridge the largest natural gas utility operator in North America at a time when natural gas demand is expected to grow. New gas-fired power generation facilities are being built to provide electricity for artificial intelligence data centres.
Investors who buy ENB stock at the current level can get a dividend yield of 6.4%.
Fortis
Fortis (TSX:FTS) trades near $62.50 at the time of writing. The stock was above $66.50 last week before tanking with the broader market.
Fortis is one of those dividend stocks investors can buy and simply sit on for decades. The company owns and operates utilities in Canada, the United States, and the Caribbean. Businesses include natural gas distribution, power generation, and electricity transmission utilities. Nearly all of the revenue comes from rate-regulated assets. This means cash flow is normally predictable and reliable. Commercial and residential customers need to heat buildings and keep the lights on regardless of the state of the economy. As such, Fortis should hold up well during a recession.
Fortis has its own $26 billion capital program on the go that will boost the rate base from $39 billion in 2024 to $53 billion in 2029. As new assets are completed and go into service, the company expects cash flow to rise enough to support planned annual dividend increases of 4% to 6%. Fortis raised the dividend in each of the past 51 years, so the guidance should be solid.
Investors who buy Fortis at the current level can get a dividend yield of 3.9%. That’s better than most GICs right now.
The bottom line on top stocks for passive income
Near-term volatility is expected, but Enbridge and Fortis look attractive at current levels and pay good dividends that should continue to grow. If you have some cash to put to work, these stocks deserve to be on your radar.
