We invest in dividend stocks to earn consistent passive income irrespective of where the market goes. Further, they chug along nicely and deliver solid returns in the long term.
However, not all dividend stocks have the potential to deliver regular earnings for decades. So, how should investors find a top dividend-paying stock? One way is to look at a company’s dividend payment and growth history. Further, investors should also look at the corporation’s future earnings potential.
If you plan to add a few top-quality dividend stocks to your portfolio, here are my three favourite ones.
Fortis (TSX:FTS)(NYSE:FTS) is one of the best and safest stocks for investors to generate passive income. The reasons are its solid dividend-growth history of 48 years, clear visibility over future payouts, rate-regulated assets, and a growing earnings base (its earnings have a CAGR, or compound annual growth rate, of 5%).
It has 10 low-risk utility businesses that generate predictable cash flows. Further, through its $20 billion capital plan, Fortis expects to expand its rate base, which will support revenue and earnings growth. Fortis projects its rate base to increase at a CAGR of 6% through 2026. Meanwhile, it expects to grow its dividend at a similar pace through 2025.
Fortis’s diversified regulated portfolio, conservative business, growing renewable power-generation capacity, and robust dividend payment and growth history make it a solid investment. Further, investors can earn a well-protected dividend yield of 3.9%.
Top Canadian banks should be on your radar to generate uninterrupted passive income. For instance, most of them have been growing their earnings at a decent pace and paying dividends for several decades. Among top Canadian banks, Scotiabank (TSX:BNS)(NYSE:BNS) is an attractive play due to its high yield and ability to grow earnings.
Scotiabank has been paying a regular dividend since 1833. Meanwhile, its dividend has a CAGR of 6% in the past decade. Its solid dividend growth is backed by the continued growth in its earnings (Scotiabank’s earnings have increased at a CAGR of 5% in the past decade).
Its exposure to top banking markets and growing market share will support its growth. Meanwhile, its ability to grow loans and deposits volumes, solid credit quality, and strong balance sheet will support its earnings and dividend payments. Meanwhile, Scotiabank offers an attractive dividend yield of 6.1%.
Enbridge (TSX:ENB)(NYSE:ENB) should be part of your passive-income portfolio. Its stellar dividend growth history (277 years), long track record of dividend payment (over 67 years), and highly diversified cash flow streams (over 40 cash streams) make it one of my favourite stocks to earn worry-free income.
Enbridge has grown its EBITDA (earnings before interest, taxes, depreciation, and amortization) at a CAGR of 14% since 2008. This has driven its distributable cash flow (DCF) per share and dividend payments.
Its solid asset mix (conventional and renewable), high-quality customer base (95% of its customers are investment grade), contractual arrangements, and inflation-protected EBITDA (80% of EBITDA has inflation protection) bode well for future dividend growth. Meanwhile, Enbridge pays a stellar dividend yield of 6.7%.