The 3 Best Dividend Stocks to Buy for Long-Term Passive Income

Investing in dividend stocks can provide significantly less volatile returns over the long term. And since companies that pay dividends tend to have much stronger balance sheets than those that don’t (which is especially true for companies that have paid dividends consistently over a long period of time), I like to start my research on potential stock picks with dividends as a key factor to consider up front.

For those looking to create significant passive income over the long term, current profitability is what matters. However, a company’s future dividend growth rate also matters.

In my opinion, these two top Canadian dividend stocks are worth taking a closer look at because of their long-term potential to generate total return in this market.

Bank of Nova Scotia

Bank of Nova Scotia (TSX:BNS) is one of Canada’s five largest banks, but it also operates globally. With one of the strongest balance sheets among its peers, Scotiabank remains my top pick for investors looking for both a solid yield (currently 6.1%) and healthy long-term capital growth, as the chart below shows.

Bank of Nova Scotia has developed a strategy to withdraw from less favorable markets (such as Colombia) while focusing on more attractive ones, such as Mexico. It also intends to establish a presence in the United States, ultimately aiming to establish a North American banking powerhouse stretching from Canada to Mexico.

In line with this strategy, the company recently unveiled an agreement to acquire nearly 15% of KeyCorp. As the company grows in the U.S. and becomes one of the more global Canadian banks on a relative basis, I believe this stock is worth owning for the long term, and not just for its dividend.

Enbridge

Enbridge (TSX:ENB) has long been favored as the top dividend stock in the Canadian market. With yields that have approached double digits in recent years, that’s enough of a catalyst for many income investors to consider the name.

However, I see Enbridge as a great defensive dividend stock due to its core business model as one of the most important energy infrastructure companies in North America. The company provides investors with a reliable income stream to support its high dividend yield and steady dividend growth. Its extensive pipeline network and interests in energy infrastructure have contributed to its long-term success, supported by stable cash flows and a resilient business model in the energy sector.

The stock is a favorite among Canadian shareholders due to its history of growth and steady dividend payments. Furthermore, despite Enbridge’s strategic acquisitions, such as various U.S. gas utilities, integrating these assets and managing related costs could pose potential risks.

The company’s growth strategy is heavily dependent on these acquisitions, and any delays or difficulties in achieving the expected synergies could impact Enbridge’s financial results. However, the company’s historical approach to paying shareholder-friendly dividends makes it a stock to add to your investment portfolio.

Fortis

Fortis (TSX:FTS) operates a heavily regulated utility business serving 3.5 million customers. Approximately 99% of its assets are regulated, making its finances less vulnerable to market volatility and providing consistent and predictable financial results.

Over the past decade, the company has achieved an average total shareholder return of 9%. The company has also consistently increased its dividend for the past 50 years, with the current projected rate of return being 3.9%.

Fortis intends to allocate approximately USD 25 billion between 2024 and 2028 to expand its asset base, achieving a compound annual growth rate of 6.3%. The company also intends to finance approximately 55% of these investments from its operations and 11% from its debt, ensuring that these investments do not significantly increase its debt level.

In time, I think this utility giant should be able to benefit from long-term secular trends in higher energy consumption, which makes Fortis’ recent rally look like a blip on a long-term chart. And with 50 consecutive years of dividend increases behind it, this Dividend King is certainly worth having in your portfolio for that reason alone.