New Investors: 2 Canadian Dividend Stocks for a TFSA Retirement Fund

Toronto-Dominion Bank (TSX:TD)(NYSE:TD) and Fortis Inc. (TSX:FTS)(NYSE:FTS) might be good picks to get started. Here’s why.

| More on:

Young Canadians are searching for ways to set aside adequate cash to finance a comfortable retirement.

One popular strategy involves owning dividend-growth stocks inside a Tax Free Savings Account (TFSA) and investing the distributions in new shares. This sets off a powerful compounding process that can turn a modest initial investment into a nice nest egg over time.

Let’s take a look at two top companies that might be attractive today.

Toronto-Dominion Bank (TSX:TD)(NYSE:TD)

TD is widely viewed as the safest pick among the big Canadian banks due to its strong focus on retail banking activities. The company is primarily known for its Canadian operations, but TD also has a large presence in the United States.

The company actually operates more branches south of the border than it does in the home country, and the American division generates greater than 30% of TD’s net income. This provides a nice hedge against any potential trouble in the Canadian economy.

The company has a compound annual dividend-growth rate of about 10% over the past 20 years, and investors should see the strong trend continue.

At the time of writing, TD provides a yield of 3.2%.

Rising interest rates could put some pressure on homeowners in the coming years, but TD’s mortgage portfolio is capable of riding out a downturn.

Fortis Inc. (TSX:FTS)(NYSE:FTS)

Fortis owns natural gas distribution, power generation, and electric transmission assets in Canada, the United States, and the Caribbean.

The company has grown over the years through strategic acquisitions, and like TD, Fortis has focused much of the recent investment on the United States, and the U.S.-based operations now account for more than half of the company’s assets.

Fortis gets the majority of its revenue from regulated businesses, which means cash flow should be predictable and reliable. This is attractive for buy-and-hold investors who want to invest dividends in new shares.

Fortis recently bumped up its five-year capital plan to $14.5 billion. Management says the new investments should support dividend growth of at least 6% per year through 2022.

The company has increased the distribution every year for more than four decades, so investors should feel comfortable with the guidance. The stock provides a yield of 4%.

Fortis tends to hold up well when the broader market hits a rough patch, and the nature of its business makes it relatively recession resistant.

Is one more attractive?

Both companies should continue to be strong buy-and-hold picks for a dividend-focused TFSA retirement fund. I would probably split a new investment between the two stocks today.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

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

More on Dividend Stocks

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.
Dividend Stocks

CRA Update: No Taxes on Your First $16,129 in 2025!

Here's what the basic personal amount tax credit and recent TFSA increase means for your finances.

Read more »

Person holding a smartphone with a stock chart on screen
Dividend Stocks

Is Telus Stock a Buy for its Dividend Yield?

Telus is down 12% in 2024. Is the stock now oversold?

Read more »

Data center woman holding laptop
Dividend Stocks

Buy 5,144 Shares of This Top Dividend Stock for $300/Month in Passive Income

Pick up the right dividend stock, and investors can look forward to high passive income each and every month.

Read more »

Canadian dollars are printed
Dividend Stocks

Transform Your TFSA Into a Cash-Creating Machine With $15,000

If you have a windfall of $15,000, putting it in a TFSA is a great start. But investing it in…

Read more »

woman retiree on computer
Dividend Stocks

1 Reliable Dividend Stock for the Ultimate Retirement Income Stream

This TSX stock has given investors a dividend increase every year for decades.

Read more »

calculate and analyze stock
Dividend Stocks

8.7% Dividend Yield: Is KP Tissue Stock a Good Buy?

This top TSX stock is certainly one to consider for that dividend yield, but is that dividend safe given the…

Read more »

grow money, wealth build
Dividend Stocks

TELUS Stock Has a Nice Yield, But This Dividend Stock Looks Safer

TELUS stock certainly has a shiny dividend, but the dividend stock simply doesn't look as stable as this other high-yielding…

Read more »

profit rises over time
Dividend Stocks

A Dividend Giant I’d Buy Over TD Stock Right Now

TD stock has long been one of the top dividend stocks for investors to consider, but that's simply no longer…

Read more »