This TFSA Stock Pays 3.4% and Deposits Cash Like Clockwork

Investors searching for dependable passive income in a Tax-Free Savings Account (TFSA) probably want to find stocks that combine stability, reliable dividends, and long-term growth potential. While many companies offer attractive yields, not all of them can consistently deliver during economic downturns or periods of market volatility. That’s why conservative investors may want to take a closer look at Fortis (TSX:FTS) as an idea — a large North American utility that has quietly become one of Canada’s most reliable dividend-paying stocks.

Fortis stock currently offers a dividend yield of nearly 3.4%, but the real attraction is not just the yield itself — it’s the consistency behind those payments. For investors who value predictable cash flow and peace of mind, this TFSA stock has proven its reliability time and time again.

Fortis stock: A dividend-growth machine

Fortis has built an impressive reputation as one of the most dependable dividend stocks on the Toronto Stock Exchange (TSX). The company has increased its dividend for more than 50 consecutive years, placing it among the elite group of Canadian dividend-growth companies. Few businesses can match that level of consistency.

This long dividend-growth streak is supported by a highly stable business model. Fortis operates regulated utility assets across Canada, the United States, and the Caribbean, generating predictable revenue from electricity and natural gas distribution. Because people continue to use essential utilities regardless of economic conditions, Fortis enjoys resilient earnings even during recessions.

The company’s payout ratio is expected to remain around 72% of adjusted earnings this year, which suggests the dividend remains sustainable. That’s an important factor for TFSA investors who rely on steady passive income. A high yield means little if the payout is at risk, but Fortis has repeatedly demonstrated its ability to maintain and grow shareholder distributions over time.

Why Fortis fits well in a TFSA

A TFSA is designed to help Canadians grow wealth tax-free, making it an ideal place to hold dependable dividend stocks for the long term. Fortis stock fits that strategy particularly well because of its combination of income stability and moderate growth.

Unlike riskier high-yield stocks that can experience large price swings, Fortis tends to trade with lower volatility. Investors are often willing to pay a premium for that stability, especially during uncertain markets. At around $75.25 per share at writing, the stock trades at a blended price-to-earnings (P/E) ratio of approximately 21.1, which is about 11% above its long-term average valuation.

While that valuation suggests the stock may be a tad expensive today, quality rarely comes cheap. Investors buying Fortis are paying for reliability, defensive characteristics, and decades of proven execution.

Should you buy Fortis stock now?

Fortis may not be the type of stock that doubles overnight, but that’s precisely what makes it attractive for conservative TFSA investors. It offers a dependable stream of tax-free income while providing gradual long-term growth potential.

For investors seeking a larger margin of safety, waiting for a pullback into the $65 to $70 range over the next 12 months could present a more attractive entry point. However, long-term investors focused on stability and passive income may still find value in dollar-cost averaging into a position starting today and aiming to hold for years.

Investor takeaway

Fortis stock is a defensive TFSA stock that pays dependable dividends like clockwork. With more than 50 years of dividend increases, stable utility operations, and resilient earnings, it remains a good idea for conservative investors seeking tax-free passive income. Although the stock currently trades at a premium valuation, its consistency and defensive qualities continue to make it one of the top, conservative long-term income investments on the TSX.

The post This TFSA Stock Pays 3.4% and Deposits Cash Like Clockwork appeared first on The Motley Fool Canada.

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More reading

• 2 Canadian Dividend Giants to Buy With Rate Changes on Hold
• The Surprising Reason Boring Utility Stocks Are Worth a Second Look Right Now
• 3 Canadian Dividend Stocks That Look Built to Hold Up Through a Recession
• How to Use a TFSA to Bring in $1,000 a Month Completely Tax-Free
• 2 Dividend Stocks Worth Holding for the Next 7 Years

Fool contributor Kay Ng has no position in any of the stocks mentioned. The Motley Fool recommends Fortis. The Motley Fool has a disclosure policy.