How TFSA Investors Could Benefit From This Market Crash

TFSA investors can take advantage of this market crash by buying solid dividend stocks as they build their long-term income portfolios.

| More on:
Businessperson's Hand Putting Coin In Piggybank

Image source: Getty Images

Is this the right time to buy stocks for investors who use their Tax-Free Savings Accounts (TFSAs) to generate savings and long-term wealth?

In this uncertain environment, there is no easy answer to this question. Many strategists still see more downside after markets in North America made the fastest plunge to bear market in history. 

Both the S&P/TSX Composite Index and the S&P 500 are down more than 30% from their record highs reached just last month, as the coronavirus pandemic spreads, forcing the governments to lock down their cities. According to Goldman Sachs Group, if the economic fallout from the spreading coronavirus deepens, the S&P 500 could fall another 26% from Friday’s close to 2,000.

Despite all the gloom and uncertainty, one thing is clear: the top-quality dividend stocks are a lot cheaper than they were last month, and they offer a great opportunity to TFSA investors to build their income-producing portfolios.

TFSA investors should focus on the companies that provide basic and essential services and whose revenue are not volatile, such as power and gas utilities.

TFSA stocks to buy

In a Friday note, Raymond James analyst David Quezada upgraded Fortis (TSX:FTS)(NYSE:FTS) to “outperform” after the utility’s stock dropped 20% in the current downturn from its recent highs. 

Calling Fortis “the premier defensive name in our coverage universe,” he cited the company’s diversified assets, highly regulated earnings and $18.8 billion capital plan that faces “minimal risk.”

St. John’s-based Fortis has a diversified asset base, providing electricity and gas to 3.2 million customers in the U.S., Canada, and in Caribbean countries. Its U.S. operations account for about 60% of its regulated earnings, while the rest comes from its Canadian and Caribbean operations.

It’s not just utilities that have gotten hammered in this indiscriminate sell-off. Canada’s top telecom stocks have also become cheap for TFSA investors who want to invest and earn growing dividends. 

What supports stability in their cash flows is that no matter what happens to the economy, we have to pay our internet and cellphone bills. These recurring cash flows allow these companies to keep hiking their payouts regularly. 

In this space, I like BCE (TSX:BCE)(NYSE:BCE), Canada’s largest telecom operator with a massive moat that helps the company generate strong cash flows. This leading position in the industry means that TFSA investors will continue to benefit, as the company rewards its investors with higher payouts each year.

BCE stock has lost about a quarter of its value just in a month. Trading around $48 a share, it now yields a massive 7%. At this level, TFSA investors will be getting $3.33-a-share annual dividend.

Bottom line

Dividend stocks such as utilities and telecom operators are low-risk investments that are becoming attractive again after this steep sell-off. TFSA investors could start building their long-term income portfolios by buying these stocks at a much lower level and higher yields.

Whether you’re looking at utilities or other sectors, the key to successful investing is to always stay diversified and focus on the long term.

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 Haris Anwar has no position in the stocks mentioned in this article.

More on Dividend Stocks

Senior Couple Walking With Pet Bulldog In Countryside
Dividend Stocks

CPP Insights: The Average Benefit at Age 60 in 2024

The average CPP benefit at age 60 in average is low, but claiming early has many advantages with the right…

Read more »

Dividend Stocks

Why Did goeasy Stock Jump 6% This Week?

The spring budget came in from our federal government, and goeasy stock (TSX:GSY) investors were incredibly pleased by the results.

Read more »

woman analyze data
Dividend Stocks

My Top 5 Dividend Stocks for Passive-Income Investors to Buy in April 2024

These five TSX dividend stocks can help you create a passive stream of dividend income for life. Let's see why.

Read more »

investment research
Dividend Stocks

5 Easy Ways to Make Extra Money in Canada

These easy methods can help Canadians make money in 2024, and keep it growing throughout the years to come.

Read more »

Road sign warning of a risk ahead
Dividend Stocks

High Yield = High Risk? 3 TSX Stocks With 8.8%+ Dividends Explained

High yield equals high risk also applies to dividend investing and three TSX stocks offering generous dividends.

Read more »

Dial moving from 4G to 5G
Dividend Stocks

Is Telus a Buy?

Telus Inc (TSX:T) has a high dividend yield, but is it worth it on the whole?

Read more »

Senior couple at the lake having a picnic
Dividend Stocks

How to Maximize CPP Benefits at Age 70

CPP users who can wait to collect benefits have ways to retire with ample retirement income at age 70.

Read more »

Growing plant shoots on coins
Dividend Stocks

3 Reliable Dividend Stocks With Yields Above 5.9% That You Can Buy for Less Than $8,000 Right Now

With an 8% dividend yield, Enbridge is one of the stocks to buy to gain exposure to a very generous…

Read more »