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Retirees: 2 Top TSX Dividend Stocks to Buy Now for Passive Income in 2024

Aditya Raghunath
·4 min read
Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Image source: Getty Images

Written by Aditya Raghunath at The Motley Fool Canada

Retirees looking to generate a passive income stream can consider investing in utility stocks such as Emera (TSX:EMA) and Capital Power (TSX:CPX). Generally, utility stocks are part of mature industries and generate stable earnings across market cycles, as a majority of their cash flows are regulated. As cash flows are predictable, utility stocks pay shareholders a tasty dividend yield and increase the payouts at a steady pace over time.

Is Emera stock a good buy right now?

Valued at $13.8 billion by market cap, Emera pays shareholders an annual dividend of $2.87 per share, translating to a forward yield of 5.94%. With $39 billion in assets, Emera has investments in Canada, the U.S., and the Caribbean. It primarily invests in verticals such as regulated electricity generation and electricity and gas transmission and distribution.

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Emera ended 2023 with an average rate base of $27.2 billion and a three-year capital program of $8.9 billion, which should drive future cash flow and earnings higher.

Despite a challenging macro environment, Emera reported earnings of $3.57 per share in 2023, compared to $3.56 per share in 2022. Its operating cash flow more than doubled to $2.3 billion allowing it to invest $2.9 billion to expand the rate base.

Emera reported $1.3 billion in adjusted net income last year, which suggests it is trading at 10.6 times trailing earnings. It owns and operates six regulated utilities and derives 96% of net income from these assets.

Emera pays shareholders an annual dividend of $2.87 per share, and these payouts have doubled in the last 10 years. Moreover, Emera expects to grow its dividends between 4% and 5% annually through 2026.

Analysts tracking the TSX stock remain bullish and expect shares to surge over 10% in the next 12 months. After adjusting for dividends total returns will be closer to 16%.

Is Capital Power stock undervalued?

Valued at $4.6 billion by market cap, Capital Power is a growth-oriented power producer with 9,300 megawatts (MW) of power generation at 32 facilities across North America. In Q4 of 2023, Capital Power generated adjusted funds from operations (AFFO) of $162 million, adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $313 million and a net income of $95 million. In 2023, its AFFO stood at $819 million, with an EBITDA of $1.45 billion and a net income of $737 million.

Capital Power pays shareholders an annual dividend of $2.46 per share, indicating a forward yield of 6.4%. In the last decade, Capital Power has increased EBITDA by 11% annually while dividends have grown by 8% annually, enhancing the yield at cost by a significant margin.

In 2024, Capital Power aims to allocate between $180 million and $200 million towards capital expenditures. Its AFFO is forecast to be between $770 million and $870 million. At the midpoint forecast, Capital Power’s payout ratio is well below 50%, providing it with the flexibility to strengthen its balance sheet and target accretive acquisitions.

Priced at just 12 times forward earnings, CPX stock trades at a discount of 13% to consensus price target estimates. After accounting for its dividends, total returns may be closer to 20%.

The post Retirees: 2 Top TSX Dividend Stocks to Buy Now for Passive Income in 2024 appeared first on The Motley Fool Canada.

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Fool contributor Aditya Raghunath has positions in Capital Power. The Motley Fool recommends Emera. The Motley Fool has a disclosure policy.

2024