For long-term investors whose aim is to build their saving portfolio, Canada’s Tax-Free Savings Account (TFSA) provide one of the best avenues.
By investing through TFSAs, you don’t have to pay any tax on your capital gains at the time of withdrawal. You’re also free to dip into this account during emergencies and these withdrawals don’t reduce your limit.
Once you have decided to use your TFSA limit to start your saving journey, the next big challenge is to decide which investments offer the best rate of return. In my view, investing in dividend-paying stocks is the best way to grow your wealth and beat the rate of inflation.
No investment in equity markets is risk-free, but top-quality dividend stocks are generally offer a safe bet in the long run, as they belong to companies which command wide economic moats and are in a great position to defend their businesses from competition.
These qualities make them cash machines for their investors, who receive growing dividends year after year. In Canada, many companies are known for their income appeal. Today, I’m going to introduce BCE Inc. (TSX:BCE)(NYSE:BCE) and Canadian National Railway (TSX:CNR)(NYSE:CNI) to consider for your TFSA portfolio. Both stocks have many strengths that make them a good long-term bet.
Market leadership
Both BCE and CN Rail are the leaders in their sectors, positioning them to generate superior cash flows. BCE is the largest telecom company in Canada. The operator has invested tens of billions of dollars in everything from wireless to data lines to media assets.
BCE is rapidly expanding Canada’s broadband fibre and wireless network infrastructure, with annual capital investments surpassing $4 billion. This size and scale of BCE makes it very tough for new players to destroy the company’s enterprise value and snatch away its loyal customers.
CN Rail, on the other hand, is a transportation giant with a huge scale and reach. It runs a 19,600-mile rail network that spans Canada and mid-America, connecting the Atlantic, the Pacific, and the Gulf of Mexico. This wide economic moat makes CN Rail a stock that has the power to defend its business, while continuing to pursue growth.
Dividend growth
Both stocks have a long history of rewarding their investors. BCE’s payout has more than doubled during the past decade. With an annual dividend yield of 5.47%, the company pays $3.02 payout annually.
CN Rail has paid uninterrupted dividends since going public in the late 1990s. This year, management boosted the quarterly payout by 10% to $0.46 per share, totaling $1.82 annually.
The company’s ability to continue paying growing dividend is something you must look for when you add a stock in your TFSA portfolio. CNR has been increasing its dividend with a five-year CAGR of 14% with plans to continue with the double-digit growth in its payouts.
Bottom line
Buying stocks, such as BCE and CN Rail, will help you slowly build your savings through TFSA. The secret of doing this successfully is that you remain invested and don’t panic in the market downturns.
