TFSA Investors: Where to Invest $5,000 Now

For TFSA investors, it’s a great time to buy top dividend stocks that are consistent in delivering strong returns.

| More on:

Image source: Getty Images

When is the right time for investors, using their Tax-Free Savings Accounts (TFSAs), to put their money to work?

In my view, any time is good to start creating a solid income stream for your retirement or other needs. The reality in this perpetually low interest rate environment is that TFSA investors need to have a good chunk of their portfolio tied to dividend stocks that pay higher yields and have the ability to survive in the toughest economic environment, such as the one we’re seeing after the coronavirus pandemic.

If you’ve a small, unutilized space in your TFSA, even as little as $5,000, then the best route for you is to buy quality dividend stocks that have the ability to recover from downturns and continue to pay you regular income. 

Here are three to dividend stocks to help you get started.

Toronto-Dominion Bank

Canadian banks are some of the best dividend-paying stocks in North America. What makes them different from their peers north of the border is less competition, a sound regulatory environment, and diversification.

They operate in a kind of oligopoly where competition is limited, and the regulatory environment is very favourable for their growth. Canada’s top lenders have been very consistent in rewarding investors through steadily growing dividends. They spend about 40-50% of their income paying dividends. Such predictability is unique and makes them very attractive targets for TFSA investors. 

In this group, I particularly like Toronto-Dominion Bank (TSX:TD)(NYSE:TD), Canada’s second-largest lender. The lender has a very attractive dividend policy supported by strong growth momentum. TD also has a significant retail banking operation in the United States. You may be surprised to know that TD has more retail branches in the U.S. than in Canada with a network that stretches from Maine to Florida. 

After the current market sell-off, TD stock is now yielding more than 5%, offering a great entry to long-term investors. The bank is forecast to grow its dividend payout between 7% and 10% each year going forward — an impressive growth rate at a time when the 10-year government note is yielding less than 1%. TD stock, after falling 17% this year, was trading at $60.29 today.


Enbridge (TSX:ENB)(NYSE:ENB) is a top pick among the Canadian energy infrastructure companies. Through its constant growth and a smart acquisition strategy, the company has reached a scale that will enable it to produce a steady income stream for TFSA holders for a long time. 

Power and gas utilities generally offer a good income stream if you remain invested for the long run. Enbridge is North America’s largest pipeline operator. Due to the company’s massive moat and its crucial position in the region’s energy supply chain, its stock is considered defensive and a good fit for TFSA portfolios.

Offering an 8.1% annual dividend yield following the post-pandemic weakness in markets, Enbridge is now one of the top-yielding stocks from Canada. The company has paid dividends for over 66 years to its shareholders. It was trading at $40.26 after a 22% plunge.

CN Rail

Canadian National Railway (TSX:CNR)(NYSE:CNI) runs a 100-year-old railway business and has a strong leadership position in the transportation sector.

One major reason that makes CN Rail a top stock to buy is that the company provides a crucial link to the expanding North American economy. CNR runs a 19,600-mile rail network that spans Canada and mid-America, connecting the Atlantic, the Pacific, and the Gulf of Mexico. I don’t think that dominant position is under threat any time soon, even if we slip into a deep recession.

The best companies for long-term TFSA investors are those that operate in duopolies, because they command pricing power after creating a strong economic moat that stops competition from challenging their dominance. The Canadian rail industry is a quintessential duopoly dominated by CNR and Canadian Pacific Railway.

Trading at $80.59, CNR now yields more than 2%. That yield may look meagre to you in comparison with other dividend stocks, but CN Rail is also a great growth stock. Over the past 10 years, CNR stock has delivered about 200% capital growth, including dividends.

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 owns Enbridge shares. David Gardner owns shares of Canadian National Railway. The Motley Fool owns shares of and recommends Canadian National Railway and Enbridge. The Motley Fool recommends Canadian National Railway.

More on Dividend Stocks

worry concern
Dividend Stocks

Worried About a Recession? 2 Canadian Blue-Chip Stocks to Buy and Hold for Dear Life

A recession is worrisome. Buying two blue-chip TSX stocks and holding them for the long term will deliver stable, less…

Read more »

money cash dividends
Dividend Stocks

TFSA: 3 of the Best Canadian Dividend Stocks to Buy This Year

Are you looking for some of the best Canadian Dividend stocks to buy this year? Here are three great options…

Read more »

Man data analyze
Dividend Stocks

2 Recession-Tough Stocks to Buy in February 2023

TSX stocks, such as Jamieson Wellness, are trading at compelling valuations and might deliver stellar gains to investors.

Read more »

A worker overlooks an oil refinery plant.
Dividend Stocks

Defensive Investors: 3 Stocks to Shore Up Your Portfolio

Fortis is a defensive stock with an impressive track record.

Read more »

edit Woman calculating figures next to a laptop
Dividend Stocks

Passive Income: 2 Cheap Stocks to Buy and Never Sell

Buying dividend stocks cheap and discounted is a strategy many value investors pursue to maximize the return potential.

Read more »

Female friends enjoying their dessert together at a mall
Dividend Stocks

Dividend Stocks: Will Debt Load Put a Damper on This Top Stock in 2023?

This dividend stock has a very solid track record of revenue and cash flow growth, ,as well as dividend growth,…

Read more »

A plant grows from coins.
Dividend Stocks

How to Invest in One of the Most Important Commodities in the World (It’s Not Gold)

Many things we take for granted may offer economic value and a powerful investment opportunity beyond commodities like gold or…

Read more »

growing plant shoots on stacked coins
Dividend Stocks

Need Passive Income? Turn $15,000 Into $1,016 Annually With These 2 Dividend Stocks

Canadian investors with limited capital can create passive-income streams from two high-yield dividend stocks.

Read more »