Retirees and other income investors are constantly searching for reliable dividend stocks to add to their TFSA portfolios.
The strategy makes sense, as all distributions earned from the investments can go straight into your pocket.
That’s right, the taxman can’t touch the TFSA gains.
Let’s take a look at Enbridge Inc. (TSX:ENB)(NYSE:ENB) and Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) to see why they might be interesting picks right now.
Enbridge
Enbridge closed its $37 billion purchase of Spectra Energy earlier this year in a deal that created North America’s largest energy infrastructure company.
Spectra not only added strategic natural gas assets to complement Enbridge’s heavy focus on liquids pipelines, but it also brought a nice portfolio of development projects.
In fact, Enbridge has close to $27 billion in commercially secured growth capital projects on the go as well as another $48 billion of risk-weighted projects under consideration.
As a result, management expects cash flow to increase enough to support annual dividend hikes of at least 10% through 2024.
Investors should feel comfortable with the guidance. Enbridge has had a compound annual dividend growth rate of 11% over the past two decades.
The current payout provides a yield of 4.8%.
CIBC
CIBC currently trades at a significant discount to its peers.
Why?
The bank is widely viewed as being the most exposed to a downturn in the Canadian residential housing market, and as interest rates rise, investors fear house prices could tumble and hit bank stocks hard.
A total meltdown would certainly be negative for the banks, and CIBC would feel some pain, but things would have to get extremely bad before the bank takes a material hit.
For example, CIBC said last year that it would incur mortgage losses of less than $100 million if house prices fell 30% and unemployment surged to 11% across Canada.
Management is taking steps to diversify the revenue stream through acquisitions in the United States, and those deals should provide a solid platform for further growth south of the border.
CIBC raised its dividend earlier this year, so the company can’t be too concerned about the earnings outlook.
The distribution should be safe, even if the housing market gets ugly in the next few years.
The current payout provides a yield of 4.7%.
Is one a better bet?
Both stocks should be solid buy-and-hold picks for an income-focused TFSA portfolio.
At this point, Enbridge probably has a better dividend-growth outlook over the medium term, so I would make the pipeline giant the first pick.
