Sometimes investors find themselves with a cash windfall.
It could be the result of a bonus from work, a gift from a family member, or the proceeds from the sale of the RV that’s been parked in the driveway for the past five years.
Regardless of the source, one way to use the funds is to buy dividend stocks inside your TFSA.
Which stocks should you buy?
If you are looking to grow the investment, the best stocks are going to be top-quality dividend names with attractive yields.
Let’s take a look at Inter Pipeline Ltd. (TSX:IPL) and Toronto-Dominion Bank (TSX:TD)(NYSE:TD) to see why they might be solid picks.
Inter Pipeline
Inter Pipeline operates a natural gas liquids (NGL) extraction business, oil sands infrastructure, conventional oil pipelines, and a European liquids storage business.
The diversified revenue stream has enabled the company to weather the oil rout reasonably well, and investors could see some nice dividend and share-price growth in the coming years.
Why?
Inter Pipeline recently announced a deal to buy midstream NGL assets from The Williams Companies for $1.35 billion. The purchase is being made at a time when the sector is under pressure, so Inter Pipeline is making a bet that prices will recover.
The market initially reacted negatively to the deal, but I think the investment will prove to be a wise one.
Inter Pipeline is buying the assets at a 45% discount to what Williams Canada has invested in building the two NGL extraction plants, a fractionator, and the pipeline network that connects the facilities.
As market prices improve, the assets could generate significant cash flow.
Inter Pipeline reported solid Q2 2016 net income of $123 million, up 67% from the same period last year.
The stock pays a monthly dividend of $0.13 per share, which yields 5.7%.
TD
TD is probably the safest bet among the big Canadian banks.
The company gets the majority of its earnings from retail banking operations, which tend to be less volatile than other segments, such as capital markets, that can be heavily impacted by shocks to the financial system.
TD is also the least exposed to the energy sector with less than 1% of its loan portfolio directly linked to oil and gas companies.
The bank continues to generate strong results amid challenging economic conditions. Fiscal Q2 2016 net income was $2.3 billion–a solid 5% higher than the same period in 2015.
Management raised the dividend 8% earlier this year, and investors should see the distribution continue to rise in step with earnings growth.
The stock currently pays a quarterly distribution of $0.55 per share for a yield of 3.9%.
Is one a better bet?
Both stocks are strong picks for a TFSA.
At the moment I would go with Inter Pipeline. The stock offers a better yield, and investors could pick up some nice capital gains in the coming years as the oil patch recovers.
If you are concerned the energy sector might be in for some extended pain, TD is probably the safer bet.
