TFSA Investors: 2 Top Income Stocks to Earn 5% Tax-Free Yield

Retirees and other income investors are searching for opportunities to get better returns on their savings.

Retirees and other income investors are searching for opportunities to get better returns on their savings.

The Tax-Free Savings Account (TFSA) has emerged as a popular vehicle for holding top-quality dividend stocks. The TFSA contribution limit will increase by $6,000 in 2020, which puts the maximum room per person at $69,500.

Let’s take a look at two reliable dividend stocks that currently provide above-average yield.

BCE

BCE (TSX: BCE)(NYSE: BCE) has charted a new course in the past decade, making strategic acquisition in the media space to secure valuable content for its TV and streaming services.

The company is also investing billions of dollars on new network infrastructure to ensure it can keep up with rapidly growing broadband demand.

As technology advances and 5G eventually goes mainstream, BCE is in a good position to capitalize on emerging revenue opportunities.

For example, the evolution of the smart home creates a completely new segment where BCE can offer existing mobile, internet, and TV customers a suite of home security and remote monitoring products and services.

The company enjoys a wide competitive moat and has the power to boost prices when it needs additional cash.

BCE generates solid free cash flow that is adequate to support the dividend and investors should see steady payout hikes continue in the coming years. The stock tends to hold up well when the broader undergo periods of volatility, making BCE an attractive defensive pick.

Interest rates aren’t expected to increase in Canada in the near term, and the next move could actually be a reduction. Lower rates tend to be positive for BCE, as they reduce borrowing costs and make the stock more appealing for income investors who can’t get adequate returns from fixed-income alternatives.

Investors who buy BCE today can pick up a 5% yield.

Power Corp

Power Corp (TSX: POW) is a holding company with interests in insurance, wealth management, and renewable energy. The company’s reach covers Canada, the United States, the Caribbean, Europe, and China.

In Canada, the subsidiaries include all of the financial companies owned by Power Financial, including Great-West Life and IGM Financial, which in turn own a portfolio of the most recognized business in their respective sectors. Canada life, Mackenzie Financial, and Investors Group are among the holdings.

In addition, Power Financial has a stake in Pargesa, a European holding company that owns interests in multi-nationals such as Adidas, Pernod Ricard, and LafargeHolcim, among others. Wealthsimple and the venture capital funds Portag3 and Portag3 II are also part of the mix.

The renewable energy group owns interests in solar and wind assets, a manufacturer of LED lighting, and an electric vehicle company.

It all gets a bit confusing when you drill down through the cross holdings, but the important part for investors is the end result.

The share price of Power Corp is up from $25 at the start of the year to above $32. Investors who buy now can still pick up a solid 5% dividend yield.

The bottom line

BCE and Power Corp are top Canadian businesses with reliable dividends that offer above-average yield.

If you’re searching for quality dividend stocks to add to your TFSA income fund, these names deserve to be on your radar.

Fool contributor Andrew Walker owns shares of BCE.

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