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One Mistake to Avoid in Your TFSA

No doubt by now you know the benefits of a TFSA. Sometimes dubbed as “not just a savings account,” TFSAs can be used to grow your income, and there are no extra points for being too conservative, as they can hold both cash and a variety of other investments. However, being overly aggressive can result in substantial losses from which it is hard to recover.

Low-risk dividend-paying stocks are some of the best investments you can hold in your TFSA; they are a steady and reliable source of passive income and are unlikely to cause you to incur catastrophic losses. Let’s consider one of the best such stock on the TSX: Fortis Inc (TSX:FTS) (NYSE:FTS).

Core operations

Regulated utility companies are given the right to sell electricity and gas by the relevant authorities. In exchange, these companies have to abide by certain rules, including the amount of money they invest, the fees they charge their customers, and what profit margins they can earn. These stringent regulatory practices have their disadvantages. However, regulated utility companies generally earn very stable and predictable revenues as a result.

Fortis — one of the largest such company in North America — generates over 90% of its earnings from regulated utilities. The company has been expanding its revenue base, however, resulting in higher revenues and higher earnings recently. Over the past five years, Fortis’ revenues have boasted a compound annual growth rate of about 15%, while its net income shows a compound annual growth rate of about 25%. Fortis’ share value increase by 52% over the same period.

Further, Fortis currently has various ongoing growth projects. The utility firm plans to invest over $17 billion through 2023 both in the U.S. in Canada, much of which will go into efforts to deliver cleaner energy. Fortis is also focusing on optimizing and improving existing assets, making them safer and more efficient. While Fortis’ net margins are currently slightly below industry’s standards, the company is moving toward greater efficiency; its net profit margin for the previous fiscal year was its highest in a long time. Fortis’ current projects should help with these efforts.

A dividend superstar

Fortis is well known as one of the most stable dividend-paying companies in Canada. Indeed, the firm now has a streak of 45 consecutive years of dividend increases, making Fortis a dividend aristocrat. Over the past five years, Fortis’ dividend payouts have increased by 40%. The company’s guidance currently includes a 6% yearly dividend increase per through 2023. Fortis currently offers investors a 3.64% dividend yield and a decent payout ratio of 66.6%.

Investor takeaway

While you may not be able to completely eradicate risk, it is wise to pursue a low-risk strategy when it comes to your TFSA. Fortis fits the profile of a low-volatility, dividend-paying stock with strong growth prospects that can supply your TFSA with cash for years.

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Fool contributor Prosper Bakiny has no position in any of the companies mentioned. 

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