Canadian investors are searching for top dividend stocks to hold inside their Tax-Free Savings Accounts.
The strategy is a wise one, as the full value of the dividends can be used to purchase new shares, and when the time comes to cash out and spend the money, all capital gains are protected from the taxman.
Let’s take a look at BCE Inc. (TSX:BCE)(NYSE:BCE) and Enbridge Inc. (TSX:ENB)(NYSE:ENB) to see why they might be interesting picks.
BCE
BCE recently closed its acquisition of Manitoba Telecom Services in a deal that boosts the communications giant to the number one position in the Manitoba market. It also gives BCE a strong base in central Canada as it looks to extend its presence in the western provinces.
Over the past decade, BCE has also spent some big money to build a media business. The group now contains sports teams, a television station, radio stations, specialty TV channels, and an advertising company.
These assets, when combined with the world-class mobile and wireline network infrastructure, make up a business that has the potential to interact with most Canadians on a weekly, if not daily, basis.
In fact, any time a person in this country sends a text, calls a friend, streams a movie, checks e-mail, listens to the traffic report, or watches the news, the odds are pretty good that BCE is involved somewhere along the line.
That’s a powerful business.
BCE has a strong track record of dividend growth supported by rising free cash flow.
The current payout provides a yield of 4.75%.
Enbridge
Enbridge has also been on the acquisition trail with its $37 billion purchase of Spectra Energy.
The newly combined company is a giant in the North American energy infrastructure sector with liquids and gas pipelines, natural gas utilities, and renewable energy assets.
Enbridge has $27 billion in development projects underway that should provide support for healthy dividend growth in the medium term.
In fact, as the assets are completed and go into service, Enbridge expects cash flow to rise enough to support annual dividend hikes of at least 10% through 2024.
The stock currently provides a yield of 4.6%.
Is one more attractive?
Enbridge probably offers better dividend-growth prospects over the medium term. The stock has also pulled back in the past month amid weakness in the broader energy sector.
As such, I would make the pipeline company my first pick today.
