TFSA Investors: Turn the TFSA into Your Cash Machine With These Proven Dividend-Growth Stocks

Build a $100,000 TFSA portfolio safely and get rising dividend income from Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) and another stock.

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Accumulate more than $100,000 in your Tax-Free Savings Account (TFSA) in 10 years by contributing $6,000 every year and getting a very reasonable rate of return of 10%.

Here are some proven dividend growth stocks that can help you secure that 10% return.

Get 5% yield and 5% growth from Pembina

Pembina Pipeline (TSX:PPL)(NYSE:PBA) has a track record of growing its cash flow that supports safe and rising dividends. Since 2008, its adjusted cash flow has been in an upward trend with the utmost stability — increasing by nearly 11% per year on a per-share basis over a decade and through the last recession!

Although we target a 10% return, Pembina stock will likely outperform. In the past five years, the company has increased its dividend at a compound annual growth rate of 6.4%.

A challenging energy pricing environment has had little impact on the company. Pembina just reported its second-quarter results: its total volume remained stable at 3,384 mboe/d, while its adjusted EBITDA, a cash flow proxy, rose 9% to $765 million year over year.

sit back and collect dividends

The energy infrastructure company has a history of bringing projects into service on time and on budget. It’s currently constructing $3 billion of pipeline expansion projects or gas-treating facilities, which are set to progressively come online from late 2019 through the first half of 2022.

Reasonably-valued Pembina stock offers a yield of about 5% and growth of about 5% that will lead to a roughly 10% long-term return. Investors can exceed this target if they get the chance to buy Pembina shares on dips of +7% or if the company makes an accretive acquisition to spark greater growth.

Get 5% yield and over 5% growth from Scotiabank

Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) is another dividend growth stock that has similar income and growth characteristics as that of Pembina. Scotiabank offers a safe yield of 5% and earnings growth of about 5-6%.

Although we target a 10% return, BNS stock will likely outperform. In the past five years, it increased its dividend at a CAGR of 6.5%.

Moreover, the stock is trading at a historically low valuation — at about 1.3 times book value and about 9.7 times earnings. A reversion to the mean can lift the stock to $88-94 per share 27-36% higher though this is more like an over three-year price target range.

The bank’s Canadian operations pretty much cover for its dividend. It aims for greater long-term growth via its international operations in Mexico, Peru, Chile, and Colombia, where it’s significantly underbanked and there is a younger population.

Since 2009, Scotiabank has had returns on equity of +13%, which is proof that it’s consistently profitable and an excellent long-term investment as a cash machine.

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 Kay Ng owns shares of Pembina Pipeline and The Bank of Nova Scotia.

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