Retirees: 3 Reliable Canadian Dividend Stocks to Buy Now for Passive Income

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Canadian retirees are looking for ways to get better returns on their hard-earned savings to offset the impact of high inflation. A popular strategy involves buying at the top TSX Dividend shares in a tax-free savings account (TFSA). All dividends and capital gains generated within a TFSA are exempt from the Canada Revenue Agency and do not jeopardize Old Age Security (OAS) pension payments.

The Market correction The past year has driven the share prices of some of the best Canadian dividend stocks to attractive levels for buy-and-hold income investors.

CIBC

CIBC (TSX: Principal) is Canada’s fifth largest bank by market capitalization, but it has a relatively large Canadian residential mortgage portfolio. Rising interest rates through 2022 have made loans more expensive for variable-rate borrowers and fixed-rate mortgage holders who need to renew. The Bank of Canada raised rates again, but further increases are not expected as long as inflation remains low.

The risk for CIBC and other banks is that rates will need to stay where they are to ensure inflation falls to 2% through 2023 and 2024. If long-term rates rise, more households will be forced to refinance higher mortgages. If unemployment rises at the same time, a wave of delinquencies could hit the mortgage market and CIBC could feel the pain more than its target peers.

That being said, most economists predict a short and mild recession and a return to 2% inflation by the end of the year. Assuming the economy goes through a soft landing, CIBC should not see a material impact on the mortgage portfolio.

At the current share price near $58.50, investors can buy CIBC shares at 8.8 times trailing 12-month earnings. It is a very suitable multiple in difficult economic conditions.

Despite the economic intervention, management told investors in June that it expects adjusted earnings to grow in fiscal 2023, and the board announced two dividend increases last year. Based on this, CIBC shares now seem undervalued, and investors can enjoy a 5.8% dividend yield.

TC power

TC power (TSX:TRP) is trading at $57 per share at the time of writing, compared to $74 last June. The pullback gives investors an opportunity to buy the stock on a meaningful dip and reap a 6.3% dividend yield.

TC Energy is dealing with significant costs on its Onshore GasLink pipeline project, which will bring natural gas from producers in northeastern British Columbia to a new liquefied natural gas (LNG) facility on the BC coast. The company settled a cost-sharing disagreement with LNG Canada last summer, and the project is now 80% complete with engine operations expected by the end of the year.

TC Energy has $34 billion in capital projects underway, which will help drive revenue and cash flow growth in the coming years. Management still expects to deliver 3-5% annual dividend growth over the medium term.

Fortis

Fortis (TSX:FTS) is a Canadian utility company that derives 99% of its revenue from regulated assets. Power generation, power transmission and natural gas distribution are essential services that customers need regardless of the state of the economy.

Fortis has raised its dividend for the past 49 years. It is currently trading near $55.50 compared to $65 last year and now offers a 4% dividend yield.

The bottom line of the best stocks for passive income

CIPC, DC Energy and Fortis are top DSX dividend stocks that should continue to increase their payouts. If you have some money to put to work in a passive income-focused TFSA, these stocks deserve to be on your radar.

Position Retirees: 3 Reliable Canadian Dividend Stocks to Buy Now for Passive Income appeared first Motley Fool Canada.

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Further reading

• 3 Best Once-a-Decade Stocks to Buy Now
• 3 Cheapest Stocks I’ll Buy Before the Market Explodes
• TFSA Couples: How to Make $806 a Month in Tax-Free Passive Income
• 2 Undervalued TSX Stocks Worth Buying Now
• Passive income investors: 2 safe stocks to save in RRSP

The Motley Fool recommends Fortis. A motley fool Disclosure Policy. Fool Contributor Andrew Walker has no position in any of the stocks mentioned.

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