Young Investors: 2 Top Dividend Stocks to Buy Inside Your TFSA

Young Canadians are searching for ways to save some money for retirement.

One popular option is to buy dividend stocks inside a TFSA and reinvest the distributions in new shares. This sets off a powerful compounding process that can turn a modest initial investment into a comfortable retirement fund.

Let’s take a look at TransCanada Corporation (TSX:TRP)(NYSE:TRP) and Royal Bank of Canada (TSX:RY)(NYSE:RY) to see why they might be interesting picks.


TransCanada expanded its presence in the United States last year with the US$13 billion acquisition of Columbia Pipeline Group.

The deal added important gas facilities and infrastructure, including strategic assets in the growing Marcellus and Utica shale plays, as well as an important pipeline system that runs from Appalachia to the Gulf Coast.

In addition, Columbia provided a nice boost to the capital plan, which TransCanada says is about $24 billion.

As the new projects are completed and go into service, TransCanada expects cash flow to grow enough to support annual dividend increases of at least 8% per year through 2020.

The current quarterly payout of $0.625 per share provides a yield of 4%.

If the company’s Keystone XL pipeline finally goes ahead, investors could see an upward revision in the dividend-growth guidance.

Royal Bank

Royal Bank earned $2.8 billion in fiscal Q3 2017. That’s one seriously profitable company!

Part of the giant’s success can be attributed to the balanced nature of its revenue stream. Royal Bank operates personal and commercial banking, wealth management, and capital markets divisions, as well as insurance operations, although that group is now smaller due to a divestiture.

Royal Bank has also ramped up its presence in the U.S. in recent years, with the 2015 purchase of City National, a California-based private and commercial bank.

The City National deal positions Royal Bank for further expansion in the sector in the coming years and provides investors with more exposure to the United States.

Royal Bank has a strong track record of dividend growth, and that should continue. The current payout provides a yield of 4%.

Is one more attractive?

Both stocks should be solid buy-and-hold picks for a TFSA retirement portfolio.

TransCanada likely offers a better dividend-growth rate over the near term, but Royal Bank’s stock has pulled back recently, making it an attractive pick today.

If you only go with one, I would probably choose Royal Bank right now.

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Fool contributor Andrew Walker has no position in any stock mentioned.

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