Retirees: 2 Top Income Stocks for Your High-Yield TFSA Portfolio as Interest Rates Rise

Canadian pensioners are searching for reliable dividend stocks to hold in their Tax-Free Savings Accounts (TFSA).

The strategy is a wise one, as all the distributions earned inside the TFSA can go straight into your pocket. That’s right; the tax authorities don’t get one penny of the payouts.

In the event the stocks appreciate and you decide to lock in some capital gains, all of that money goes in your pocket, too!

Rising interest rates have some investors concerned their dividend stocks could be at risk of a severe hit.

Higher interest rates can certainly have an impact on companies that rely heavily on debt to fund growth, but the businesses that continue to grow revenue and cash flow, despite the increased borrowing costs, should still perform well.

Some sectors, such as insurance, actually benefit when rates increase.

Let’s take a look at Enbridge Inc. (TSX:ENB)(NYSE:ENB) and Power Financial Corp. (TSX:PWF) to see why they might be interesting picks today.


Enbridge bought Spectra Energy earlier this year in a $37 billion deal that created North America’s largest energy infrastructure company. Spectra added important natural gas assets in Canada and the United States and provided a nice boost to the capital plan.

In fact, Enbridge’s Q2 2017 report says the company has $31 billion in commercially secured development projects on the go that should be completed in the next few years.

As the new assets go into service, Enbridge expects cash flow to increase enough to support annual dividend hikes of at least 10% through 2024.

That’s great news for income investors who are primarily concerned with receiving reliable and growing distributions from their stocks.

Enbridge has pulled back in 2017 amid the broader weakness in the energy sector. At the time of writing, investors can pick up a dividend yield of 4.8%.

Some pundits say the pipeline companies will be hurt by rising rates, but Enbridge’s growth prospects should offset any negative effects.

Power Financial

Power Financial is a holding company with assets in the wealth management and insurance sectors in Canada. The company also has an ownership stake in a European firm that owns positions in some of the continent’s top global businesses.

As interest rates rise, the insurance businesses in Power Corp.’s stable should benefit from higher returns on the funds they have to set aside for potential claims.

Rising rates tend to occur as a result of a strong economy, which bodes well for the wealth management operations.

The stock currently provides a yield of 4.9%.

Is one more attractive?

Both companies provide above-average yield on dividends that should be very safe.

Enbridge probably offers better dividend-growth prospects in the medium term, so I would make the pipeline giant the first pick today.

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Fool contributor Andrew Walker owns shares of Enbridge. The Motley Fool owns shares of Enbridge. Enbridge is a recommendation of Stock Advisor Canada.

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