The stock market rally off the March low already erased many of the dividend deals in the TSX Index, but some stocks still appear cheap right now.
Top TFSA stocks
Retirees can take advantage of the TFSA to buy quality dividend stocks and create a tax-free stream of income. This is actually the case for anyone with a TFSA, but seniors who are receiving OAS get an extra benefit. The income generated inside the TFSA isn’t taxed when removed, and the CRA won’t add the gains to the net world income calculation used to determine OAS clawbacks.
What are the best picks?
The recession caused by the pandemic might turn out to be deeper than expected. As a result, income investors should consider top companies that provide essential services and have long histories of dividend growth.
Let’s take a look at two stocks that appear cheap right now and might be interesting picks for TFSA income fund.
BCE (TSX:BCE)(NYSE:BCE) is Canada’s largest communications firm with a market capitalization of $50 billion. The company’s wireless and wireline network infrastructure delivers mobile, internet, and TV services to Canadians across the country.
BCE invests billions of dollars to ensure its subscribers have access to world-class broadband services. The fibre-to-the premises program continues to connect clients in urban centres directly to fibre-optic lines. This serves as a good way for BCE to protect its competitive position while enabling homes and businesses to access the content they desire.
The lockdowns have forced millions of employees and students to work and study from their homes. Streaming demand is up significantly, as professionals use digital conferencing to conduct business, while their kids access educational and entertainment content.
Demand for high-end data plans and additional streaming subscriptions could turn up as a revenue boost through the crisis. This might help offset the anticipated hit to the media operations.
BCE raised its dividend by 5% for 2020. The payout should be very safe and now provides a 6% yield.
Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) is number three on the list of Canada’s largest banks. The company’s big bet on Latin America stands out among its peers, and this aspect is both a near-term risk and a long-term opportunity.
The international operations primarily operate in Mexico, Peru, Chile, and Colombia. The four countries form the core of the Pacific Alliance trade bloc and are home to more than 225 million consumers. The global economic slowdown is putting pressure on countries like these that rely on high commodity prices. Oil and copper production, for example, play significant roles in the economic activity of the Pacific Alliance group.
Bank of Nova Scotia gets about 30% of its net income from the international businesses, so there is added risk from the emerging markets. That said, there is also strong long-term potential once the economic recovery takes hold.
Bank of Nova Scotia entered the crisis with a strong capital position. The measures put in place by the Canadian government should help the bank and its peers navigate the storm. CMHC is buying up to $150 billion in mortgages. In addition, aid measures to get cash to the recently unemployed and struggling business should help mitigate the economic impact of the lockdowns.
We are in for a few rough months, but Bank of Nova Scotia should be positioned well to ride it out. The dividend looks safe, and the stock appears somewhat oversold.
Investors who buy today can pick up a 6.6% yield.
The bottom line
BCE and Bank of Nova Scotia are top-quality companies with reliable dividends that now offer attractive yields.
If you are searching for income stocks for a TFSA portfolio, these companies deserve to be on your radar.
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.
The Motley Fool recommends BANK OF NOVA SCOTIA. Fool contributor Andrew Walker owns shares of BCE.