3 Top Stocks to Buy Now to Power Your TFSA During a Recession

For long-term TFSA investors, the current market weakness offers a good opportunity to stash their portfolios with top dividend stocks.

Haris Anwar

Published May 5, 2020 8:00 am EDT

Which stocks are suitable to power your Tax-Free Savings Account (TFSA) at a time when the economy is slipping into a brutal recession?

Before we get into stock picking, it’s important to understand that the TFSA is a long-term saving vehicle you can use to accumulate wealth for your retirement or for your other needs.

The best time to buy stocks for that goal in mind is when the prices are low. The market crash after the coronavirus pandemic has provided one such opportunity to long-term investors.

To help you get started, I have picked three top Canadian stocks I find very suitable for TFSA investors. Let’s take a deeper look.

BCE

For the post-pandemic world, telecom utilities should be on top of your buying list. I like telecom stocks, because they have very simple business models that often produce very strong income flows for their investors.

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. The company has a massive moat that helps it to 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.

Trading at $56.30 at writing, BCE is yielding about 6% and pays $0.8325 a share quarterly dividend, which has been growing about 5% per year during the past decade.

Royal Bank of Canada

Canadian banks have been a trusted source for earning a steadily growing stream of income. They are among the top dividend stocks in North America, benefiting from their balance sheet strength and their careful lending practices.

If you decide to add one of the best banking stocks from Canada for your TFSA, consider buying Royal Bank of Canada (TSX: RY)(NYSE: RY), Canada’s largest lender and with a robust presence in the U.S.

After the current sell-off, its stock is about 20% cheaper than it was a year ago. With this weakness, its dividend yield has soared to more than 5%. Royal Bank is one of the top dividend payers that has been growing payouts regularly, and there is a very strong possibility that the lender will continue to hike its payouts.

Trading at $85.14 at writing, RBC stock is a solid bet for your TFSA. The stock currently pays a quarterly payout of $1.08 a share.

Dollarama

For TFSA investors who want to hold a quality retailer in their portfolio, Dollarama (TSX: DOL) is certainly a name to add. Its consumer proposition is solid, and its business model is one of the most financially productive.

Discount retailers generally perform well when the economy slows down and the threat of recession rises. While cutting back spending on vacations and other luxury items, consumers are highly unlikely to stop buying low-priced, daily-use items, such as storage containers and back-to-school supplies.

With this backdrop in mind, it’s a good time to buy Dollarama stock, especially after its 5% plunge this year. Trading around $42.60 a share at writing, this stock still offers good value to long-term investors. The stock also pays a $0.04-a-share quarterly dividend.