Why work when your money can work for you?
Canadian investors are increasingly using the Tax-Free Savings Account (TFSA) to build dividend-focused portfolios.
The strategy makes sense for younger investors who want to create a self-directed pension fund. The full value of the distributions can be used to buy more shares and turn reasonably small investments into a nice nest egg over the course of 20 or 30 years.
Retirees and other income investors can take advantage of the tax-free status of the earnings to complement their company pension, CPP, OAS, and RRIF payments.
The TFSA contribution limit is as high as $63,500 for any Canadian resident who was at least 18 years old in 2009. That would mean a couple now has up to $127,000 in TFSA room. The 2020 increase is expected to be $6,000 per person.
Let’s take a look at two high-yield stocks that might be interesting picks for your TFSA buy list today.
Inter Pipeline
Inter Pipeline (TSX:IPL) operates oil sands pipelines, conventional oil pipelines, and natural gas liquids (NGL) extraction facilities in Canada. The company also has a bulk liquids storage business in Europe.
Inter Pipeline grows through strategic acquisitions and organic developments. The company is currently building a $3.5 billion polypropylene plant that will turn propane into plastic. The Heartland Petrochemical Complex, as it is known, should be completed by the end of 2021.
Inter Pipeline has raised its dividend for 10 straight years. The current payout provides a yield of 7.7%.
The stock is down amid concerns the company might take on too much debt to get the Heartland project built. Inter Pipeline said it is exploring the potential sale of the European business to help fund the capital program.
The stock surged earlier this year on a report that Inter Pipeline had received a takeover offer at $30 per share. Management said the board had been approached but did not confirm the terms and said the offer had been rejected. Inter Pipeline currently trades at $22 per share, so there could be some big upside on a new bid.
BCE
BCE (TSX:BCE)(NYSE:BCE) is Canada’s largest communications company with wireline and wireless infrastructure providing people and businesses with mobile, internet, and TV services across the country.
BCE also has a media division that includes sports teams, a television network, specialty channels, radio stations, a streaming service, and popular websites.
The company is investing billions of dollars in network upgrades, including its fibre-to-the-premises program that runs fibre optic connections right into homes and business. This is an important move to ensure the company maintains its competitive advantage.
BCE is harnessing new technology to boost offerings to its clients. The expansion of IoT, for example, creates opportunities to add smart home security services for existing customers.
BCE is on track to meet its goal of 7-12% free cash flow growth in 2019. That’s good news for dividend investors who count on the company to raise the distribution every year.
BCE’s stock recently pulled back after a competitor released weak earnings, but the dip appears overdone, and bargain hunters are already scooping up the shares.
At the time of writing, BCE provides a yield of 5.1%.
The bottom line
Inter Pipeline and BCE pay attractive dividends that should be safe.
If you are searching for high-yield picks for a TFSA income fund, these stocks deserve to be on your radar.
