2 of the Best TSX Dividend Stocks I Plan on Holding Forever

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Written by Aditya Raghunath at The Motley Fool Canada

Investing in dividend stocks is a low-cost way to create a passive stream of recurring income. While it’s crucial to identify companies that offer you a tasty dividend yield, they also need to be armed with robust balance sheets and sustainable payout ratios.

Investors can either choose to withdraw dividends or reinvest them to buy additional shares of the company, increasing your payouts consistently over time. Here are two of the best TSX dividend stocks I plan on holding forever.

Enbridge stock

Among the largest energy infrastructure companies globally, Enbridge (TSX:ENB) pays shareholders an annual dividend of $3.55 per share, translating to a forward yield of 7.6%. While Enbridge is part of a cyclical sector, it has raised dividends by 10% annually in the last 28 years, showcasing the resiliency of its cash flows.

In the last few years, Enbridge has focused on a series of mergers, divestitures, and growth projects, allowing it to diversify its revenue base significantly. While oil still accounts for 50% of cash flows, the natural gas business has increased its cash flow contribution to 47% in 2023, up from 21% in 2016.

Enbridge recently announced its intention to acquire three natural gas utilities from Dominion Energy for US$14 billion, which made investors nervous. Enbridge will have to raise debt capital to fund this big-ticket acquisition resulting in higher interest rates and reducing its financial flexibility.

However, the utilities are regulated assets and will help Enbridge generate a steady stream of cash flows. Moreover, these acquisitions will shift Enbridge’s earnings mix toward lower-carbon energy and improve the stability of its earnings profile.

More than 80% of Enbridge’s cash flows are tied to long-term contracts, which, in turn, are indexed to inflation, making it among the safest dividend stocks to own in 2023.

Priced at 16 times forward earnings, ENB stock is cheap and trades at a discount of 18% to consensus price target estimates.

Brookfield Renewable Energy stock

A clean energy heavyweight Brookfield Renewable (TSX:BEP.UN) should be on top of your shopping list today. Down 46% from all-time highs, the TSX stock offers you a tasty dividend yield of 5.5%.

Capital-intensive companies such as Brookfield Renewable have trailed the broader markets by a wide margin in the past two years due to rising interest rates and lower profit margins. But the pullback allows you to gain exposure to quality TSX stocks at a massive discount.

Brookfield has also gone bottom-fishing and is scooping up companies via a series of mergers and acquisitions. It just closed a deal to purchase its partner’s 50% interest in a solar power company as well as the commercial renewable energy business of Duke Energy. Further, BEP plans to ink deals with Origin Energy and Westinghouse, widening its base of cash-generating assets in the process.

Brookfield Renewable expects to invest US$1.5 billion in mergers and acquisitions, which should result in incremental fund flow from operations, or FFO, of US$200 million annually. In the first nine months of 2023, its FFO grew to US$840 million despite an uncertain macro environment.

BEP expects inflation-linked rate increases, capital growth projects, inorganic growth and cost initiatives should help it expand FFO between 7% and 12% each year. This FFO expansion should result in dividend hikes between 5% and 9% annually.

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Fool contributor Aditya Raghunath has positions in Brookfield Renewable Partners and Enbridge. The Motley Fool recommends Brookfield Renewable Partners, Dominion Energy, Duke Energy, and Enbridge. The Motley Fool has a disclosure policy.